Seven & i looks to bolster takeover defences with non-core asset sales

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Seven & i Holdings is hunting for ways to boost its share price and bolster its defences ahead of what the owner of the 7-Eleven brand believes is a looming second takeover bid from Alimentation Couche-Tard.

The Japanese group received and rejected an almost $39bn opening offer from Canada’s Couche-Tard last month. It has been exploring the possibility of selling non-core assets to private equity and other investors, according to people familiar with the situation, and accelerating plans to focus on its convenience store business.

The hunt for alternatives comes as Seven & i tries to find ways to demonstrate to shareholders that it can deliver more value as an independent business, according to the same people.

Alongside other plans, the company is considering accelerating the sale of its stake in its financial services arm, Seven Bank, as well as selling its supermarket business, which could kick off by the end of the year. In April, the group had already signalled that its Ito-Yokado supermarkets, the forerunners to Seven & i, could be listed by 2027.

UBS analysts said that gains from share sales of listed Seven Bank would mean investors “could expect additional shareholder returns or investment for growth using the proceeds”.

In a note to clients in August, JPMorgan analysts suggested that Seven & i’s supermarket business could have an enterprise value of ¥232.4bn, or more than $1.5bn. However, they also said there might only be a “minimal improvement in [Seven & i’s] valuation, even if the company sells Ito-Yokado and the bank, assuming inadequate reforms of the main business”. 

Ever since Couche-Tard’s takeover bid was made public in August, international and Japanese private equity groups have been circling Seven & i, in the hope that they could take part in a break-up of the retail conglomerate or assume a “white knight” role in a battle for control.

Executives at four separate Tokyo-based PE firms have told the Financial Times they had sent letters to Seven & i to try to open talks.

Couche-Tard’s all-cash offer of $14.86 a share was promptly rejected by Seven & i as “grossly” undervaluing the business, but the Canadian group is widely expected to come back with an improved bid. 

The Japanese group’s share price is currently trading slightly above that offer price and well above where it was before the bid became public.

One person familiar with the matter suggested Couche-Tard was waiting until after Seven & i’s second-quarter results are published on Thursday before launching a renewed bid. 

Seven & i declined to comment on the disposal plans, but people familiar with the group’s thinking said that measures to allow the business to focus on its convenience store empire could be unveiled along with its results. 

They also noted that Seven & i had been working to streamline the business and improve returns since before Couche-Tard’s interest was made public.

Seven & i has long faced calls to concentrate more on its convenience store business, including from activist investors such as ValueAct. The company has 22,800 convenience stores in Japan as well as 13,000 in the US.

In its letter to Couche-Tard rejecting the opening bid, Seven & i said it was confident it could unlock shareholder value “through a number of strategic actions, including but not limited to our US business, that we are actively pursuing”.

The Japanese group added that even if Couche-Tard were to improve the value of its proposal “very significantly”, it would not “adequately acknowledge the multiple and significant challenges such a transaction would face from US competition law enforcement”.