7-Eleven owner strengthens US grip with Speedway dealAt a time when petrol demand has suffered its worst crash in decades and electric vehiclemanufacturer Tesla has overtaken Toyota to become the world's most valuable carmaker, petrolstations seem an unlikely place to make a $21bn gamble. But forecourts have provided thebackdrop for a hotly contested takeover battle between two of the world's largest conveniencestore operators and a debt-addicted UK petrol pump group, culminating in one of the year's biggesttakeovers. Last week, Japan's Seven&i Holdings, which owns the 7-Eleven convenience storechain, outbid its rivals by nearly $4bn to strike a $21bn all-cash deal to buy Speedway, the petrolstation chain owned by Marathon Petroleum, the US's biggest oil refiner. Those rivals-Blackburn-based EG Group and Canadian convenience store operator Alimentation Couche-Tard-had made offers closer to $17bn, said two people involved in the discussions.Speedway's suitors piled in at elevated prices even though its core product, the petrol pump, risksbecoming largely unprofitable in little over a decade. The bidders were instead racing to dominatethe convenience store market, betting that growing demand for the sites' coffee, fast food andgrocery offerings will offset any drop in fuel sales. For Ryuichi Isaka, who took over as presidentof Seven&i in 2016 with the backing of US activist Daniel Loeb, an investor at the time, the dealis emblematic of his ambition to transform the group into a global retailer. It is a bold move evenfor a company that has executed more than 40 deals since 2006 to become the top operator ofconvenience stores in the US, overseeing 9,046 outlets. Buying Speedway will give Seven&i acomfortable lead against its nearest rival Couche-Tard, even though many of the speedway outletsare only very small stores with limited selection.Top 10 US convenience stores7-ElevenAlimentation Couche-TardSource NACS0SpeedwayCasey's General StoresEG AmericaMurphy USAGPM InvestmentsBP AmericaExtraMile Conv StoresWawa12Market share (%)365Number ofstores9,0465,9333,9002,1811,6791.4891,2721,017942880 The addition of Speedway's 3,900 stores in the US will immediately double Seven & i's operatingprofits in the country to $2.2bn. But the deal comes during a pandemic that has dealt a blow bothto the US retail and refinery industries as well as Seven&i's operations in Japan. It would alsodouble the Japanese group's petrol sales in the US to nearly $40bn. The rationale is to acquireconvenience stores, but petrol sales will increase as a result," said Kazunori Tsuda, analyst atDaiwa. The merger will soon bring 7-Eleven's hot foods, beverages (coffee, iced tea) and otherprivate-label brands to the former speedway outlets. While most sell some form of hot food andcoffee already, operations are inefficient and the products have generally poor quality.Shareholders have questioned Mr Isaka about whether, with deep uncertainty about the future ofpetrol-powered cars and US climate policy ahead of the November presidential election, it is theright time to make such an expensive wager. Moreover, Seven&i executives say the deal makesstrategic sense, and point to their past M&A record in the US-a return on investment of 9.6 percent and a 40 per cent rise in earnings before interest taxes, depreciation and amortization since2006.Convenience store operators' divisional breakdown2019 (sbn)EbitdaFuel salesMerchandise sales7-ElevenSource Seven & HoldingsOFT-Operating IncomeSpeedway403020100Armed with cash and cheap financing, Japanese companies have spent record amounts in recent.years buying overseas assets. Seven&i, with annual revenues of $113bn, faces a shrinking homemarket where the profitability of its convenience stores has been declining. But the outlook forpetrol stations is uncertain. In a presentation to investors, 7-Eleven executives were bullish aboutthe future of fuel consumption, saying the penetration of electric vehicles will remain limiteddespite a crackdown by governments worldwide on carbon dioxide emissions. They better be rightsince refueling drivers make up 95% of demand at gas stations' convenience stores in the US.QUESTIONConsider an industry consisting of two firms, Alpha Electric (Alpha) and Beta Machines (Beta).These firms sell somewhat differentiated products. The firms sometimes discount below list pricefor the most price-sensitive buyers. Alpha is considering adopting a most-favored-customer policy.Under this policy, Alpha guarantees to any new buyer that if it offers a lower price to anotherbuyer, Alpha will refund that price difference to the new buyer.Discuss how Alpha's introduction of the most-favored-customer policy affects the prices of Alpha(and possibly Beta). How does it affect rivalry? Answer in no more than 5 lines.

The oligopoly market is just like the market of monopolist but here there are more sellers but the…

QUESTION Consider an industry consisting of two firms, Alpha Electric (Alpha) and Beta Machines (Beta). These firms sell somewhat differentiated products. The firms sometimes discount below list price for the most price-sensitive buyers. Alpha is considering adopting a most-favored-customer policy. Under this policy, Alpha guarantees to any new buyer that if it offers a lower price to another buyer, Alpha will refund that price difference to the new buyer. Discuss how Alpha's introduction of the most-favored-customer policy affects the prices of Alpha (and possibly Beta). How does it affect rivalry? Answer in no more than 5 lines.

QUESTION Consider an industry consisting of two firms, Alpha Electric (Alpha) and Beta Machines (Beta). These firms sell somewhat differentiated products. The firms sometimes discount below list price for the most price-sensitive buyers. Alpha is considering adopting a most-favored-customer policy. Under this policy, Alpha guarantees to any new buyer that if it offers a lower price to another buyer, Alpha will refund that price difference to the new buyer. Discuss how Alpha's introduction of the most-favored-customer policy affects the prices of Alpha (and possibly Beta). How does it affect rivalry? Answer in no more than 5 lines.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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