7-Eleven operator to buy U.S. stores from Sunoco for $3.3 bln

By Taiga Uranaka

(Reuters) - Seven & i Holdings Co on Thursday said it would buy convenience stores and petrol stations from Texas-based Sunoco LP for about $3.3 billion, as the Japanese retailer closes in on its goal to reach 10,000 North American outlets.

Shares of Sunoco rose as much as 19.4 percent to $28.50 in early morning trading.

The operator of the 7-Eleven chain of convenience stores has been aggressively opening stores in Japan as well as the United States, where it has been acquiring stores from local retailers.

Its latest purchase comes as operators of traditional big-box retailers including Seven & i have been suffering weak sales as changing tastes and modest wage growth have prompted shoppers to defect to cheaper speciality chains and online outlets.

"The U.S. convenience store market has growth momentum. We see opportunities there," Seven & i President Ryuichi Isaka said at an earnings briefing after announcing the Sunoco deal.

Seven & i runs general merchandise, department and speciality stores, but the bulk of its operating profit comes from convenience stores - or 86 percent of 364.6 billion yen ($3.29 billion) in the year through February.

In a statement, the firm said U.S. unit 7-Eleven Inc has agreed to buy 1,108 Sunoco convenience stores and petrol stations in Texas and other states in August.

Sunoco currently operates about 1,350 retail fuelling sites and convenience stores under brands such as APlus and Stripes, the firm's website showed.

Sunoco expects to use the proceeds primarily to repay debt, and the rest for general partnership purposes.

The deal with 7-Eleven is the first step in Sunoco's strategic move away from company-operated convenience stores to focus on its fuel supply business.

"We view Sunoco's divestiture of assets and agreement with 7-Eleven positively as the transaction should alleviate (its) currently high leverage position and provide significantly higher cash flow visibility," RBC Capital Markets analyst Elvira Scotto said in a client note.

The deal would be the biggest by 7-Eleven Inc, known for its "Slurpee" frozen beverage. Most recently, 7-Eleven Inc acquired 79 stores in California and Wyoming from CST Brands Inc in July.

Seven & i has about 19,400 7-Eleven stores in Japan and 8,700 in the United States and Canada, including those run by franchisees. 7-Eleven Inc has said it aims to increase its number of stores to 10,000 over the three years through 2019.

In Japan, same-store sales in the year through February rose 1.8 percent at the 7-Eleven chain, but fell 4.2 percent at Seven & i's Ito-Yokado general merchandise stores.

A Japanese company which is now part of Seven & i opened a 7-Eleven store as a regional licensee in 1974. The then-new retail concept became so successful in Japan that the company later bought out the U.S. owner of the convenience store chain.

The deal is expected to close by the fourth quarter 2017.

($1 = 110.6700 yen)

(Reporting by Taiga Uranaka; Additional reporting by Ritsuko Shimizu and Chris Gallagher and Vishaka George; Editing by Amrutha Gayathri, Christopher Cushing and Martina D'Couto)