7-Eleven paying US$3.3B for Sunoco shops

Seven & i Holdings Co. agreed to pay US$3.3 billion for some Sunoco LP shops and gasoline retailers in an ambitious push by the 7-Eleven convenience chain owner to expand its U.S. footprint with its largest deal on record.

The purchase by the Japanese retailer’s 7-Eleven Inc. unit will add 1,108 gas stations and convenience stores in Texas state and across the eastern U.S., the Japan-based parent said Thursday in a statement. Sunoco’s retail business includes more than 1,300 stores and reported operating income of US$103 million last year on revenue of US$7.7 billion.

Seven & i is building up its chain in the U.S. while president Ryuichi Isaka is paring back some businesses in Japan as part of broad restructuring in which it sold unprofitable department stores and aimed to squeeze more profit from its convenience stores.

“The U.S. is a market of large potential,” Isaka told reporters in Tokyo.

Isaka’s bet on the U.S. is notable as other Japanbased chains including Fast Retailing Co. have struggled to gain traction in the world’s economy, while Japanese carmakers including Toyota Motor Corp. are fighting off Trump administration’s criticism that has rekindled trade tensions.

The deal’s enterprise value is about 10 times the Sunoco assets’ earnings before interest, taxes, depreciation and amortization, Isaka said. That’s in line with the 9.7 times median for convenience store deals since 2012, according to data compiled by Bloomberg.

Isaka said the Sunoco deal is “cheap” compared to the company’s previous acquisitions. The company plans to finance as much as US$1.3 billion of the deal through debt, he said. Isaka took the Seven & i helm last year after building up the convenience store business into the retailer’s most profitable unit as its president and COO.

“The cost of the Sunoco acquisition is even higher than those of other acquisitions in recent years and will inevitably impose a financial burden on the Group,” said Ratings & Investment Information Inc. in a note Thursday. The agency also noted that Seven & i has the capacity to improve its finances, and said it’s keeping unchanged the rating for the company.

Seven & i had cash and equivalents of 1.1 trillion yen (US$9.9 billion) as of Nov. 30, according to data compiled by Bloomberg. The company’s capital investment will more than double in current year to 807 billion yen, Isaka said.

As for Sunoco, the gasoline distributor and convenience-store operator reported a US$406 million net loss last year, the biggest deficit since at least 2007.

The 7-Eleven unit plans to sign a contract to receive gasoline from Sunoco for the next 15 years, according to the Seven & i statement Thursday.