By Scott Murdoch and Kane Wu

(Reuters) -Canada's Alimentation Couche-Tard said it was willing to engage in confidential discussions with Japanese retail giant Seven & i Holdings on its $38.5 billion takeover offer, as it remains keen on pursuing a buyout.

Shares in 7-Eleven convenience store owner Seven & i closed 2.4% higher in Tokyo on Monday at 2,185 yen ($15.26), above the $14.86 per share all-cash proposal from the Canadian firm that it rejected on Friday.

Seven & i said on Friday the deal was not in the best interests of its shareholders and could face antitrust challenges in the U.S., where the combined company would be the biggest convenience store operator by a considerable margin.

Couche-Tard, which owns the Circle-K brand, said in a statement on Sunday that it would consider divestitures that might be required to secure regulatory approvals in the U.S. and believed it would offer a compelling combination that would address all regulatory concerns in Japan.

"Given the mutual benefits of a combination, we are disappointed in 7&i's refusal to engage in friendly discussions. We are highly confident that collaborative discussions would lead to our ability to find increased value for 7&i shareholders," Couche-Tard said.

Couche-Tard said it was confident of arranging financing for the deal, which would be the largest-ever foreign takeover of a Japanese company and the biggest all-cash offer for a firm since Elon Musk bought Twitter for $40.2 billion in 2022, according to LSEG data.

"We have secured a letter from our financial adviser stating that it is highly confident that it is able to arrange the financing for the proposed transaction, subject to customary conditions," the Canadian company said.

The Japanese company said in a statement on Monday that Couche-Tard's undervaluation of it was the reason it could not agree to adviser talks between the companies or to sign a non-disclosure agreement.

Seven & i said in the statement it remained open to "sincere discussions" should Couche-Tard put forth a proposal that fully recognises its standalone intrinsic value and addresses the regulatory concerns voiced by its special committee set up to vet the deal.

FUTURE GROWTH

Investor Artisan Partners, which said on Aug. 30 it owns more than 1% of Seven & i, said having rejected the bid the onus was now on the Japanese company to make clear how it would deliver future growth to investors.

"The three reasons for rejecting the offer - price, regulatory hurdles and stakeholders - can all be resolved," said Artisan's associate portfolio manager Ben Herrick.

"More importantly, Seven & i's response starts the clock for its management and the board to demonstrate how they plan to deliver more value than was offered by Couche-Tard."

While Seven & i is much larger than Couche-Tard in terms of sales, stores, and employees, its shares have underperformed for years, drawing complaints from investors including ValueAct Capital about the company's management and asset structure.

"Seven & i is currently undervalued because of various reasons to do with structure, timing and corporate culture. Its underlying long term value is much, much higher," said JapanConsuming co-founder Michael Causton who publishes on Smartkarma.

"Couche-Tard knows this and its bid timing speaks to its skills as a dealmaker. But it will be a hard fight to get Seven & I at a low price ... a lot of investors know its real value."

The deal, if successful, would allow Couche-Tard, which has a market value of about $52 billion, to boost its global reach and improve economies of scale.

"Based on the response from Couche-Tard it would appear there is scope for a higher offer and this will be required to get the Seven & i board to engage further," said Manoj Jain, founder and co-chief investment officer at Maso Capital, a shareholder in Seven & i.

Bloomberg News earlier reported about Couche-Tard's plans and said it had not ruled out going directly to the shareholders with its bid.

($1 = 143.2200 yen)

(Reporting by Scott Murdoch in Sydney, Kane Wu in Hong Kong and Rocky Swift in Tokyo; Additional reporting by Urvi Dugar and Devika Nair in Bengaluru and Ritsuko Shimizu in Tokyo; Writing by Scott Murdoch; Editing by Diane Craft, Jamie Freed; Lincoln Feast and Muralikumar Anantharaman)