TOKYO -- Investors are giving a thumbs-down to Seven & i Holdings' planned purchase of American gas station chain Speedway, worried about the industry's long-term outlook as cars go electric.
At first glance, it seems natural for the Japanese company behind the 7-Eleven convenience store chain to strengthen operations in the U.S., with its growing population and robust consumer spending. The company is in talks to buy Speedway from Marathon Petroleum for $22 billion.
"When you think about the business environment, the acquisition is definitely the right strategic direction," a senior Seven & i executive said. Profit in the North American convenience store business has been logging double-digit growth. Overseas operations have been driven by 1,030 locations bought in 2018 from Texas-based Sunoco LP that combine convenience stores and gas stations.
But investors have worried about the Speedway purchase since news of the negotiations broke Feb. 20. Seven & i shares have slid 14% from the day before to this Friday, outpacing the Nikkei Stock Average's 10% decline.
Big acquisitions like this usually spark concerns of the buyer paying too much. And worries about goodwill -- possibly reaching around 1.5 trillion yen (roughly $14 billion) in the case of Speedway, depending on the price -- are not uncommon.
This time, the main concern for European and American investors is long-term demand for gasoline, an analyst at a foreign brokerage said. The acquisition would include about 4,000 locations, far more than from Sunoco.
American convenience stores outside urban areas are often part of gas stations. With countries around the world tightening environmental regulations, the reign of the gas-powered car might not endure. U.S. motor gasoline consumption will decline about 20% from 2019 to 2050, its Energy Information Administration forecasts.
"More often than not, the moment comes out of the blue when a business no longer works," said Takahiro Kazahaya of Credit Suisse Securities (Japan).
When a company makes a mega-acquisition involving environmental issues, it's important for the board to thoroughly examine how the purchase will impact both earning opportunities and risks in the medium to long term, said George Iguchi, chief corporate governance officer at Nissay Asset Management.