The Japanese owner of 7-Eleven convenience stores has agreed to buy Marathon Petroleum Corp’s Speedway gas stations for $21 billion to expand in the U.S. market, five months after walking away from talks amid the coronavirus outbreak.

The deal will help Seven & I Holdings Co Ltd shift its focus beyond Japan, where its convenience stores and Ito-Yokado supermarkets face a shrinking population, slow economic growth and tough price competition.

It also boosts its 7-Eleven store count in the United States and Canada to about 14,000, adding to a portfolio of stores fattened just three years earlier following a $3.3 billion purchase from Sunoco LP – furthering its convenience store lead over Canada’s Alimentation Couche-Tard Inc.

Shares in Seven & I nevertheless fell 8% on Monday morning in Tokyo on worries about a price just $1 billion lower than what the company reportedly turned down in March. At that time, analysts and investors said the price was too high given concerns about a pandemic-induced global economic slowdown.

Seven & i President Ryuji Isaka said the company decided that expanding in the United States was still beneficial, regardless of the pandemic’s hit to consumer spending.

“The coronavirus is not going to go on forever,” Isaka told a conference call following the deal announcement. While he declined to discuss specifics on why the company returned to the deal table, he said: “We made the management decision that these assets will be a source of our growth in five years.”

The deal comes after Marathon last year launched a sweeping restructuring, including a spin-off of Speedway, under sustained pressure from activist investor Elliott Management.
Marathon said it expects the deal, approved by the boards of both firms, to close in the first quarter of 2021 and generate after-tax proceeds of about $16.5 billion which it will use to pay existing debt.

The largest U.S. oil refiner by volume also said the deal includes a 15-year fuel supply agreement for about 7.7 billion gallons a year associated with the Speedway business.

Seven & i forecast $475 million to $575 million worth of synergy through the third year of the deal’s close, and compound annual growth of over 15% in 7–Eleven’s operating income.

The 7-Eleven chain originated in the United States but is now owned by Seven & i, one of Japan’s biggest retailers with a market capitalization of around $27 billion.

The group estimated the value of the deal at 7.1 times Speedway’s earnings before interest, tax and amortization including expected benefits, and said it will pay through debt and loans, and without equity financing.

The deal is the culmination of Marathon’s revived attempt to sell Speedway, with Seven & i, Couche-Tard and private equity firm TDR Capital preparing rival bids late last month, Reuters reported in July.

Reuters