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The founding family of Seven & i Holdings Co. has made a buyout proposal to counter an acquisition proposal from a Canadian company.
It is hoped that the board of directors will make a fair judgment as to which of the two proposals would contribute to the enhancement of its corporate value.
The founding family proposed a management buyout (MBO), a method in which a company’s management purchases its own shares. Using its own funds, loans from financial institutions and other means, the company would buy back its own shares and go private.
Meanwhile, the takeover bid by leading Canadian convenience store operator Alimentation Couche-Tard Inc. was made public in August this year. The purchase price would be about ¥7 trillion.
The strategy of the Canadian firm is believed to be aimed at building a huge global convenience store chain with operations in Japan, the United States, Canada and other countries.
On the other hand, Seven & i’s management announced a structural reform plan in October to focus on its mainstay convenience store operations by effectively separating businesses including Ito-Yokado Co., which was the company’s initial business, from the group in an effort to increase corporate value on its own.
However, the market has not reacted strongly to the move, and in order to defend against the takeover bid, the company seems to try to switch to the MBO, which would enable it to make quick management decisions.
There are many uncertain factors in the realization of the MBO, such as how to raise the huge amount of necessary funds. If the founding family group thinks that its proposal is superior to that of Couche-Tard, it needs to present specific explanations for that point.
The takeover proposals will be examined by a special committee consisting of independent outside directors selected from Seven & i’s board of directors.
With more than 20,000 convenience stores nationwide, Seven-Eleven Japan Co. has essentially become a form of national infrastructure.
In addition, there is a global trend to correct excessive shareholder capitalism and require management to take the interests of employees, consumers and others into account.
It is hoped that the special committee will reach a conclusion on the appropriateness of either proposal, taking these social responsibilities into consideration as well.
Seven & i’s business remains in a slump. The company’s net profit in its interim financial results for the half-year period through August was down more than 30% from a year earlier. This is due to a decline in the number of customers visiting its convenience stores as high prices continue. Another decline in profits is expected for the fiscal year ending in February 2025.
Three major operators — Seven-Eleven Japan, FamilyMart Co. and Lawson, Inc. — have a total of more than 50,000 convenience stores in Japan, showing that the market is saturated. Seven & i is also struggling in North America, where it has entered the market in an attempt to find a path to growth.
How will Seven & i respond to Couche-Tard’s takeover proposal? It is a matter of great interest overseas, as it will indicate the future of the Japanese market. Seven & i’s management must avoid a situation in which it is perceived as relying on an MBO simply to save its own skin.
