(Bloomberg) – Seven & i Holdings Co., the world’s largest convenience store franchise deal, agreed to buy Marathon Petroleum Corp.’s $ 21 billion Speedway gas stations and bet that an expanded US footprint will provide growth amid the uncertainty surrounding pandemic.
Seven & i shares fell as much as 8.4% at noon, the biggest intraday decline since March. Marathons rose 20% before regular trading hours in the United States.
The deal is the second largest purchase of an American target this year and the largest yet for Seven & i, a retail giant with 69,000 stores worldwide including 7-Eleven stores and Ito-Yokado supermarkets in Japan. Seven & i spent $ 3.3 billion three years ago to buy Sunoco LP gas stations and convenience stores to expand its US footprint.
“This is a historic first step in trying to become a global retailer,” CEO Ryuichi Isaka said at a conference call on Monday.
Marathon follows a long line of energy companies that are losing retail networks to focus on making fuel. The deal, the largest in the oil sector since the coronavirus outbreak, comes as retailers appear to shift their focus among the coronavirus pandemic, which has further supported a sector already affected by the onset of e-commerce. Marathon said it will use $ 16.5 billion in after-tax revenue to reduce debt and strengthen dividends.
The Japanese retailer sought a deal earlier this year to buy Speedway, the second largest chain of its kind in the United States, but paused after offering $ 22 billion, Bloomberg News reported.
Isaka has overseen a broad restructuring of the Japanese company since taking the helm in 2016, with a focus on expanding in the US Seven & i has been pressured by a saturated convenience store market in Japan and a tight labor market that makes its 24-7 operating model challenging.
“Japan’s convenience store market is at its peak as the population ages,” said Hiroaki Watanabe, a logistics analyst and author of a book on Japan’s convenience store industry. “It will have a short-term impact from the coronavirus in the United States, but in the long term, its population will continue to grow.”
North America accounted for about 40% of Seven & i’s sales during the most recent financial year, up from about a third five years ago. Speedway’s store numbers have tripled since 2011 across 36 states.
Late last year, Marathon faced months of pressure from investors, including Elliott Management Corp. and DE Shaw & Co., to make major changes to improve their results. Elliott had pushed for Marathon to be divided into three separate companies: refining, retail and pipelines.
The company gathered a strategic review of MPLX LP, its listed oil pipeline association, and ultimately decided to retain its stake in midstream operations. The investor pressure also led to Gary Heminger resigning as CEO in March after 45 years in the company.
American fuel manufacturers such as Marathon have struggled to recover for fear that a second viral wave will force more drivers off the road, especially in some of the country’s most populous states.
Seven & i will raise about $ 1 billion by selling overlapping US stores after the transaction, says Isaka during the conversation.
Marathon took a fee of $ 12.4 billion in the first three months of this year, while canceling share repurchases and reducing spending by 30%.
In terms of scale, the proposed deal is less than the $ 31.4 billion that Aon Plc pays for Willis Towers’ Watson Plc, according to data compiled by Bloomberg.
(Updates with shares in the third paragraph)
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