Is Japan trying to block a Canadian firm from acquiring 7-Eleven for national security reasons? 

As the world’s biggest convenience store chain, 7-Eleven operates more than 85,000 outlets globally. Source: AFP.

Less than a month ago, Japan’s Seven & i Holdings, the owner of 7-Eleven and several other retail chains, received an unsolicited buyout offer from Canadian convenience store giant Alimentation Couche-Tard.

The proposed $38 billion deal, which would have marked the largest foreign-led acquisition of a Japanese company, was swiftly rejected by Seven & i.

The company dismissed the offer, stating it “grossly” undervalued the business and posed serious antitrust risks, particularly in the United States market, where Alimentation Couche-Tard’s Circle K stores and Seven & i’s 7-Eleven shops are the top convenience store chains.

Seven & i also said that the proposal was not in the best interest of its shareholders.

Despite this outright rejection, Alimentation Couche-Tard remained undeterred. In a September 10 statement, the Canadian firm signaled its intent to pursue the acquisition, claiming it was focused on finalizing a deal that would benefit all stakeholders involved.

“We remain highly confident that we have the capacity to finance the transaction in cash, and that financing would not be a condition for closing,” the company said, positioning itself as resolute in its bid.

Then, just three days after that de-facto threat from its Canadian rival, the Japanese government itself appeared to be on track to stop the acquisition.

On September 13, Japan’s finance ministry designated Seven & i Holdings a “core” industry, according to Japan Today. The move can be seen as a protective measure aimed at preventing foreign takeovers. According to the ministry, core industries are those requiring advance notification for foreign investments due to potential risks to national security. Under this system, authorities can issue a cease-and-desist order to halt certain foreign investment activities.

That interference has a lot to do with Japan’s corporate culture, and the importance of Seven & i Holdings stores’ importance in the country. Corporate Japan, long considered impenetrable for inbound mergers and acquisitions, as ramped up its scrutiny of foreign investment in recent years– a trend noted with many other developed countries, according to New York Times.

At the heart of the concern is also the crucial role that is played by these stores, known as “conbini,” in Japan. These ubiquitous convenience stores are deeply woven into the fabric of daily life, offering much more than snacks and drinks.

They function as essential service hubs where customers can pay bills, drop off luggage before boarding trains, and even seek refuge during natural disasters.

In rural areas, where services are scarce, these stores are lifelines for communities. Any disruption to this network, officials fear, could have far-reaching consequences.

While Seven & i has downplayed the connection between the “core” industry designation and the Canadian firm’s takeover bid, insisting the classification resulted from an unrelated inquiry by the ministry in June, the timing of the decision warrants raising eyebrows.

If there would ever be a signal that the Japanese government is prepared to step in to protect what it views as a national asset, it couldn’t be clearer than this.

For now, the future of the potential acquisition remains uncertain, as Alimentation Couche-Tard has yet to abandon its pursuit. The situation could set the stage for a high-stakes battle, pitting foreign investment ambitions against Japan’s determination to safeguard its economic and social institutions.

How that will play out remains to be seen.

With inputs from agencies