Article

7-Eleven, Cardtronics to part ways in US

The loss of its largest merchant account could create a gaping hole in Cardtronics' US portfolio when the company's current agreement with the c-store chain ends midway through 2017.

July 7, 2015 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

Ending more than two years of suspense, 7-Eleven Inc. has chosen not to renew its U.S. ATM placement agreement with Cardtronics. The companies' current contract is set to expire in mid-2017.

Investment research website Seeking Alpha, reported that Cardtronics shares plummeted 12.7 percent premarket on the news. However, the company said that it does not expect the announcement to change its 2015 financial guidance, as issued on April 30.

The 7-Eleven merchant account dominates the Cardtronics portfolio, representing 17.5 percent of the ATM provider's revenues in 2014, with no other merchant customer generating more than 5 percent of Cardtronics pro forma revenues, SA said.

The announcement this morning by Cardtronics confirmed speculation among ATM industry-watchers that 7-Eleven would not renew its relationship with the company, which began in 2007.

"We are proud of the service and unique products that we have delivered to 7-Eleven since 2007," Cardtronics CEO Steve Rathgaber said in a company announcement released today. "While we are disappointed in this decision, we have every confidence in our business and the robust growth opportunities ahead of us."

The decision by 7-Eleven parent company Seven Bank will not affect a 2012 agreement granting Cardtronics the ATM placement and expansion rights for Canada. The securing of a 7-Eleven agreement in Canada was made possible by Cardtronics' acquisition of Canadian IADs Mr. Cash and Can-do-Cash Ltd. in 2011 and 2012, respectively.

A not-so-shocking outcome

Questions about the U.S. relationship arose in October 2012 when Tokyo-based Seven Bank, parent company of 7-Eleven, announced its acquisition of Financial Consulting and Trading International Inc., a nationwide ATM network and service provider based in Century City, California, for $5 billion.

Cardtronics said in today's news release that "7-Eleven announced that it has selected a related entity of 7-Eleven's parent company as its next ATM provider." In fact, that entity is FCTI.

According to a shareholder notification published today by Seven Bank:

Financial Consulting & Trading International Inc., which is Seven Bank's wholly-owned US subsidiary, held a board of directors meeting at which a resolution was passed to have FCTI enter into with 7-Eleven Inc. an ATM placement agreement which covers the 7-Eleven stores located in the U.S. ...

Seven Bank has been promoting its overseas ATM business by utilizing experience [that] has been accumulated through its business operations in Japan. In the U.S., Seven Bank has been working on expanding the ATM service network through FCTI, which became Seven Bank's wholly owned subsidiary as a result of the share acquisition in October 2012.

Under such circumstances, it has been decided that FCTI will enter into an ATM placement agreement with 7-Eleven, Inc., under which, from July 2017, FCTI will basically be able to install and operate ATMs on an exclusive basis at the 7-Eleven stores located in the US which are operated by 7-Eleven Inc.

As regards the U.S. ATM business, we believe that the execution of this agreement will result in the expansion of business (in terms of scale) as well as better cost competitiveness and profitability, which will further accelerate the growth of the business.

Blocking tactics and growth strategies

Earlier this year, Cardtronics was named in a lawsuit — now settled — related to an apparent attempt by the company in 2012 to ensure that Seven Bank would not reassign the 7-Eleven account.

In January, Minneapolis-based Investment bank Green, Holcomb & Fisher filed suit against Cardtronics Inc. and Phillip Rock, former CEO of Minnetonka, Minnesota-based ATM Network Inc., over a failed deal to sell ATM Network to Seven Bank.

GHF alleged that Rock used confidential information obtained from the Seven Bank negotiations in order to sell his company to Cardtronics for a larger sum, defrauding GHF of payment for a year's worth of work.

Rock is said to have divulged Seven Bank's desire to buy ATM Network and make it the sole provider of ATM services to 7-Eleven stores, discontinuing its business relationship with Cardtronics.

After being acquired by Seven Bank In October 2012, FCTI itself acquired the ATM business of Jacksonville, Florida-based Global Axcess in September 2013 for $10 million during Global Axcess bankruptcy proceedings, thus giving FCTI a bicoastal presence. The company also maintains a distribution warehouse in Las Vegas.

According to the Seven Bank notificaton, FCTI currently has 85 employees and operates 6,377 ATMs across the U.S. and Canada. Between them, FCTI and Seven Bank manage more than 27,000 ATMs worldwide across a variety of industries, according to the FCTI website. Seven Bank is the ATM operator for Japan's 17,569 7-Eleven stores.

The two-year countdown begins

FCTI and Seven Bank will have two years in which to prepare to take on operation of the largest retail ATM network in the United States — including approximately 7,800 company-owned and franchised stores. According to the company, it was the first c-store in the U.S. to offer ATM service, starting in 1984.

In the meantime, the  existing agreement between Cardtronics and 7-Eleven remains in effect until mid-2017, time that Cardtronics will need to fill the hole in its portfolio from the exit of 7-Eleven.

Sam Ditzion, CEO of the ATM industry consulting firm Tremont Capital group summed it up this way:

This contract negotiation, which has been a hot topic of considerable speculation for many industry observers over the past two years, is finally resolved and FCTI is the winner.

Now FCTI has two years to step up and execute, while Cardtronics has two years to try and replace the revenue and profits it will lose. Both companies have challenging tasks ahead.

photo istock

About Suzanne Cluckey

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Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.