Q: For some time I have been considering increasing my position in ATD but the company’s continued push to acquire Japanese 7-Eleven parent Seven & i Holdings Co gives me pause. Sounds like a whole lotta debt and considerable risk. Is the management team carefully assessing this or could this mainly be driven by Alain Bouchard‘s ego?
5i Research Answer:
ATD has a very very solid record of good acquisitions. It will walk away if it cannot reach a deal that works for it. It has been very aggressively outlining that it can handle this deal, and we have no reason to disbelieve the team. This may be its biggest deal but that does not make it a bad deal. The target's objections are most likely just negotiation tactics. At some price, it works for both parties. Yes, any deal can fail, and a company can pay too much. But ATD's M&A record for the past 15 years is almost perfect, and we would give management the benefit of the doubt here, especially as the stock's recent decline does reflect some of the deal risk already.