Shoppers walk out of a Seven & i Holdings' 7-Eleven convenience store in Tokyo, Japan, no April 7, 2016.Yuya Shino/Reuters
Japan’s Seven & i Holdings SVNDY is weighing a takeover offer from a member of its founding Ito family, a white-knight bid that could thwart efforts by Canada’s Alimentation Couche-Tard Inc. ATD-T to buy the 7-Eleven convenience store chain.
A special committee of Seven & i directors is reviewing options including Couche-Tard’s offer as well as a non-binding and confidential proposal received from Junro Ito, a Seven & i vice-president and director, the Japanese company said in a statement Wednesday. Mr. Ito’s father, the late Masatoshi Ito, built the retail empire that owns 7-Eleven.
“We are committed to an objective review of all alternatives before us,” said Stephen Dacus, chair of the special committee, in a statement. He said directors will “continue to engage with all parties” in a bid to maximize value and that no decision has been made to pursue a transaction with any bidder.
Mr. Ito is making the offer with his family’s asset management company, known as Ito-Kogyo. It is being billed in Japanese media as a management buyout to take Seven & i private, which would give its directors and executives breathing space to pursue their own strategy without public shareholder pressure.
The emergence of the new offer, though, reflects the belief by some Japanese powerbrokers that the country’s biggest retailer should not fall into foreign hands. The offer from Couche-Tard, owner of the Circle-K chain, is the biggest bid ever from a non-Japanese company for a Japanese target, and investors are closely watching at how it plays out.
Mr. Ito is working with trading and investment conglomerate Itochu on the offer and has the support of three of Japan’s top megabanks for a bid worth around nine trillion yen (or US$58-billion), Bloomberg reported. Itochu owns FamilyMart, Japan’s second-biggest convenience store chain behind 7-Eleven.
Seven & i did not confirm the value of the Ito bid and did not provide any other specifics about it in its statement.
Couche-Tard is currently offering US$47-billion or US$18.19 a share. The Ito group’s offer would be worth about US$22 a share, slightly more than 20-per-cent higher than Couche-Tard’s offer, according to Bank of Montreal analyst Tamy Chen.
“If there is a management buyout being contemplated at that value, it appears to be a superior offer than Couche-Tard’s,” Ms. Chen said in a note. There may be limited room for the company to increase its bid, especially if it isn’t given full access to perform due diligence, she said.
The Globe & Mail reached out to Couche-Tard, but it did not have a comment Wednesday. The two companies would be a great fit in an industry that remains highly fragmented, particularly in North America, Couche-Tard chair Alain Bouchard has previously said.
Ito-Kogyo had an 8.2-per-cent stake in Seven & i as of August and ranks as the second-biggest shareholder, according to Seven’s website. Mr. Ito, as an executive and director of Seven & i, has been excluded from all discussions within the company relating to any takeover proposal received, Mr. Dacus said in the Wednesday statement.
The development underscores the challenge that lies ahead for Mr. Bouchard as the Ito family appears opposed to selling to the Canadians. He wants to do a friendly deal, but talks with Seven & i so far have only been “preliminary and limited,” the Financial Times reported.
“The potential privatization from a friendly Japanese group would seemingly provide investors with the value creation event they seek while simultaneously skirt potential competition issues in the U.S. and concerns around foreign takeover of a core local entity for Japanese regulator,” RBC Capital Markets analyst Irene Nattel said in a note. She said she still believes a transaction between Seven & i and Couche-Tard is a low probability event.
At US$58-billion, a deal would be the largest management buyout in history. The biggest so far is the US$32.9-billion paid for U.S. hospital company HCA in 2006 when its founder teamed up with private equity heavyweights KKR & Co and Bain Capital.
Seven & i controls the 7-Eleven chain’s 85,000 stores around the world as well as a series of other assets including a bank, life insurance units and credit card businesses. The company has suffered from underperformance for years, and investors have long complained that the board has been slow to address the challenges.
In response, Seven & i has been trying to convince investors that it can deliver long-term growth on its own. Under a restructuring announced last month, it aims to split off its supermarket operation and some 30 other “non-core” units into a holding company.
Couche-Tard offers shareholders a better option, executives with the Canadian company insist.
“Our offer is a certainty, right? It’s cash, versus a hope that [Seven & i] can continue to execute on a plan that’s not delivered value over the last years,” Brian Hannasch, a special adviser with the company, told the Financial Times.
Couche-Tard executives vowed in an interview with The Globe last month to pursue Seven & i Holdings for as long as it takes. Bringing 7-Eleven into the fold would bolster the fresh food offerings at Couche-Tard’s Circle-K stores and provide a significant footprint for further expansion into Asia.
“We’re not going away,” Couche-Tard chief executive officer Alex Miller said at the time. “We see tremendous value here and we are just going to continue to highlight that and to push … we’ll get this deal.”
Mr. Bouchard first broached a merger in 2005, during a meeting with Masatoshi Ito, but was turned down. Couche-Tard then made an offer for the group in 2020 before the effort was abandoned because of the COVID-19 pandemic.
With files from Reuters