Customers exit a 7-Eleven convenience store operated by Seven & i Holdings Co., in Kobe, Japan, on Friday, Aug. 30, 2024. Alimentation Couche-Tard Inc. has made a preliminary non-binding offer to buy Seven & i, which operates more than 85,000 stores globally, in a deal that would be the largest-ever overseas acquisition by a Japanese company. Photographer: Soichiro Koriyama/Bloomberg via Getty Images
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Seven & i Holdings has rejected a takeover offer from a Canadian convenience store operator. Couche-Tard Foodsaid the offer was “not in the best interests” of shareholders and stakeholders.
In a profile With the Tokyo Stock Exchange, 7-Eleven’s owner revealed that Couche-Tard has offered to buy all outstanding shares of Seven & i for $14.86 per share.
Stephen Dacus, chairman of the special committee Seven & i set up to evaluate the Couche-Tard proposal, called the proposal “ill-timed and seriously underestimating our path to independence and the additional courses of action we see that could realize and unlock shareholder value in the short to medium term.”
In April, Seven & i announced a corporate restructuring plan, aimed at increasing 7-Eleven’s global presence as well as divesting its underperforming supermarket business.
Even if Couche-Tard raises its bid “very substantially,” the proposal fails to take into account the “many significant challenges” the acquisition would face from U.S. anti-competition authorities, Dacus wrote.
“Apart from simply stating that he did not believe the combination would unfairly impact the competitive landscape and that he would ‘consider’ potential divestments, he gave no indication of his views on the extent of divestments required or how they would be implemented,” he wrote in a letter apparently addressed to ACT Chairman Alain Bouchard and published in a filing with the Tokyo Stock Exchange.
He also pointed out that Couche-Tard’s proposal did not specify a timeline for overcoming regulatory hurdles or whether the company was “ready to do it.” all take action necessary to obtain regulatory approval, including litigation with the government.”
Dacus said Seven & i is willing to sincerely consider proposals that are in the best interests of the company’s stakeholders and shareholders, but also warned that the company will oppose proposals that “detract from the intrinsic value of the company to our shareholders or do not specifically address real legal concerns.”
Shareholders speak out
Speaking to CNBC “Squawk Box Asia“Just before the response was filed on Friday, Ben Herrick, portfolio manager at Artisan Partners, said Couche-Tard’s offer “highlights the fact that this management team and board have not done everything they could to increase the enterprise value of this entity.”
Artisan Partners is a US fund that holds a stake of just over 1% in Seven & i. In August, the company is said to have prompted Seven & i Holdings “seriously considering” the acquisition offer and calling for offers for the company’s Japanese subsidiaries “as soon as possible”.
Herrick explained that Artisan asked Seven & i to consider the offer because the fund felt that its overseas capital allocation had been overlooked.
He said Seven & i’s convenience store business in Japan doesn’t need much change, but there is a “huge opportunity” in international licensees operating outside the United States.
“You have over 50,000 stores, or about 50,000 stores that generate about $100 million or more than $100 million in operating profit for the company. So I think there’s a huge imbalance there,” he said.
Herrick also said Seven & i was slow to implement changes due to a lack of oversight and accounting.
“We really need the company to execute its plan at a faster pace here. So [Seven and i President Ryuichi] Isaka launched his 100-day plan in 2016 to reform [general merchandise store] Ito-Yokado. And we’re approaching day 3,000 here. So I don’t think speed is a big part of this culture and that needs to change,” he pointed out.
On Monday, Richard Kaye, portfolio manager at independent asset management group Comgest, disagreed in an interview on the show “Squawk Box Asia“I don’t think there’s any reason for a foreign buyer to do a radical reform,” he said.
The company is doing a “phenomenal job” on logistics and product innovation and “I think it’s hard to argue that it could be done much better,” he added. [either extra or missing quote mark in first part of this line]
