(Aug 26): It will be critical for Seven & i Holdings Co to negotiate with Alimentation Couche-Tard Inc “while it still has leverage”, following the Canadian retailer’s proposal to buy the operator of 7-Eleven convenience stores, an investor of the Japanese company said.
“Couche-Tard sees exactly what we see — an undervalued, mismanaged, world-class asset,” Ben Herrick, an associate portfolio manager of Artisan Partner International Value’s team, wrote in an email.
Couche-Tard disclosed last week that it had approached Seven & i with a preliminary and non-binding offer, lifting its shares by about 16% to a valuation of roughly ¥5.3 trillion (US$36.8 billion or RM159.76 billion). Seven & i said a committee of independent outside directors is reviewing the proposal, but hasn’t yet given any indication of how it intends to respond.
Any deal would be the largest-ever takeover of a Japanese company. Artisan’s comments, made exclusively to Bloomberg, are the first public remarks from a shareholder on the offer that came to light last week, and reflect the pressure on Seven & i’s management to take the Couche-Tard proposal seriously.
“Should the board determine the offer is inadequate, management and the board must be held accountable to expedite difficult decisions to deliver the same or better share price on behalf of shareholders,” Herrick said, adding that Artisan Partners has held stock in Seven & i since 2019.
“No decisions have been made,” a representative of Seven & i said when asked about the investor’s comments. “A special committee of independent outside directors is currently reviewing the proposal.”
Seven & i, which has more than 85,000 stores across the globe, has also been embroiled in a multi-year spat with San Francisco-based ValueAct Capital Management LP, which has publicly demanded the company spin off the 7-Eleven convenience store brand, sell non-core businesses and replace top management — with mixed success.
The investor wrote a letter to the Japanese retailer’s board in early 2022 about its weak stock performance and low valuation, as well as “outdated governance structure”, the Financial Times reported at the time.
Herrick repeated those concerns, noting that there’s now a framework at Seven & i, as well as guidelines from Japan’s Economy Ministry, for the company to evaluate offers and “protect shareholders’ economic interests — not entrenched management.”
In the past, Couche-Tard’s push to acquire such a well-known Japanese business at such scale would have been considered risky, given the tendencies of the government and corporate boards prioritising stability over shareholder value. Now, with the introduction of government guidelines last year on mergers and acquisitions instructing companies to seriously consider takeover offers, the tide may be turning.
After years of activist investors pushing for change and unconsummated attempts from abroad to buy big companies, the deal is being keenly observed at home and abroad.
“There are several win-win scenarios that would enhance the corporate value of both companies at a higher price than today,” Herrick wrote. “Couche-Tard’s offer is a test for Seven & i’s board and for Japan Inc.”
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