A restructuring plan announced by Seven & i Holdings Co. last week falls short of what’s needed and the company should pivot instead to opening substantive talks on a takeover by Canada’s Alimentation Couche-Tard Inc., an investor in the Japanese retailer said.
Seven & i, which owns the 7-Eleven convenience store chain, should immediately grant access to Couche-Tard to start due diligence and negotiate a price that maximizes value for shareholders, Artisan Partners’ International Value Team wrote in a letter published Wednesday. Artisan has a 1-per-cent stake in Seven & i and has been a shareholder since 2019, according to the letter.
“This restructuring plan is too little, too late,” Artisan portfolio managers David Samra and Benjamin Herrick wrote in the letter addressed to Seven & i directors. “The price currently being offered by Alimentation Couche-Tard is clearly superior to the speculative value that could potentially be achieved by implementing the restructuring plan at this late date.”
The letter adds to the pressure building on the board of directors of Seven & i. The company has suffered from underperformance for years and investors have long complained that the board has been slow to address the challenges. Laval, Que.-based Couche-Tard offers shareholders a way out with a premium.
Couche-Tard recently sent Seven & i a sweetened offer worth US$18.19 per share or about US$47-billion, The Globe & Mail reported last week. Seven & i’s shares are currently trading below that bid price of about 2,714 yen, signalling that investors are skeptical that a deal will get done.
Seven & i announced plans last week to refocus on its core business of more than 80,000 convenience stores. The plan involves spinning off 31 of the company’s other businesses – which range widely from supermarkets to a baby-goods store chain, a bank, and even the Denny’s restaurant chain in Japan – into a new company called York Holdings. The company said it would also change its name to 7-Eleven Corp.
Artisan said it wasn’t impressed by the moves. It said it seems clear that Seven & i finally launched a plan to reshape the business “not because management has suddenly realized the benefits of the restructuring it has long resisted, but because it will impede” Couche-Tard’s bid.
Reached Wednesday, a spokesperson for Seven & i said the company “appreciates a constructive dialogue with shareholders but does not comment on conversations with individual shareholders.” The spokesperson said the retailer does not intend to comment on its exchanges with Couche-Tard at this time.
In its letter, Artisan Partners said the identities of most of the Seven & i directors serving on a special committee struck to review the Couche-Tard offer have not been made public. It said this is “highly unusual and invites suspicion” that directors friendly to the current management team have been chosen. Their names should be made public, Artisan said.
Seven & i has “chronically suffered from ineffective oversight and accountability, resulting in a persistent valuation discount,” Artisan Partners said. “At a critical juncture in its history, we encourage you to ensure fair, independent and transparent processes to maximize shareholder value.”
As recently as Sept. 9, the Japanese company was refusing to engage with Couche-Tard, even on the external adviser-to-adviser level, and also rebuffed an offer to sign a non-disclosure agreement that would have allowed both sides to share information.
Speaking to investors last week, Seven & i president Ryuichi Isaka acknowledged the company has been “slow to respond to the changes in the environment,” which has affected performance. But he said the plan to essentially split into two companies will ultimately create more value for shareholders than a Couche-Tard takeover.
“We need to get back on track with our recovery process,” Mr. Isaka said. “Along with growth, capital efficiency will also need to be addressed in running the business. That will create the value better and stronger than that proposed by Couche-Tard.”
