Kaye Wiggins, Kana Inagaki and Ortenca Aliaj.
Having earlier failed to agree on pricing, the Japanese retail giant decided to forge ahead with its largest-ever acquisition, to cement its top position in the US convenience store market and capture growth outside a shrinking home market.
Ohio-based Marathon has come under pressure from activist investor Elliott Management, which last year launched a second campaign to push the oil group to address its “chronic underperformance” by breaking up its businesses. Marathon had already announced plans to spin off Speedway into a separate entity.
The US oil group recently resumed its efforts to divest Speedway after exclusive talks with Seven & i to sell the business for about $22bn fell apart in March, according to people close to the talks.
For Seven & i, the deal extends its US push following the $3.3bn purchase of parts of Sunoco’s convenience store and petrol station business in 2017. The addition of Speedway will expand its market share in the US convenience store market from 5.9 per cent to 8.5 per cent, pushing it further ahead of its closest rival, Canada’s Alimentation Couche-Tard.
“This will allow us to take a historic step towards becoming a global retailer,” Ryuichi Isaka, chief executive of Seven & i, said during a conference call on Monday.
Shares in Seven & i fell as much as 7.8 per cent on Monday in Tokyo due to concerns about the acquisition price, which puts Speedway’s enterprise value at 13.7 times earnings before interest tax, depreciation and amortisation.
In its presentation, Seven & i said it would use a US tax scheme to save $3bn over the next 15 years, and expected synergies of up to $575m within three years. Along with a plan to sell $1bn in assets, the company said the actual acquisition price would be closer to 7 times EV/ebitda.
Jefferies analyst Michael Allen said Seven & i’s balance sheet was strong enough to finance the deal, adding the pandemic was not creating any new funding challenges: “I think it’s going to give them the opportunity to make more acquisitions in the future. It makes their job a lot easier since they are alone as number one in this market.”
The company plans to use bridge loans and corporate bond issuance to finance the deal with a target to reduce its debt to less than three times its ebitda in two years.
In a statement on Sunday, Marathon’s chief executive officer Michael J Hennigan said: “The establishment of a long-term strategic relationship with 7-Eleven creates opportunities to improve our commercial performance.”
It includes a 15-year fuel supply agreement under which Marathon will supply Speedway with about 7.7bn gallons a year. Marathon, the US’s biggest oil refiner, “expects incremental opportunities over time” to supply more 7-Eleven sites, it said.
The company said the deal will generate about $16.5bn in after-tax proceeds, which will go to repaying debt and returning funds to shareholders.
EG Group, a Blackburn-based petrol station chain part-owned by TDR Capital that has grown rapidly through acquisitions in recent years, had also expressed interest in the Speedway business, people familiar with the deal said.
Marathon said the deal has been approved by the boards of both companies and is expected to complete in the first quarter of 2021.