Buyout on Hold: Seven & i investors eye execution before backing deal or strategy
[TOKYO] The annual meeting of Seven & i Holdings shareholders is likely to be a low-key event, despite the drama surrounding a company facing a takeover proposal by Alimentation Couche-Tard, the operator of Circle K stores.
Investors appear to be willing to see what happens with the radical overhaul that the Japanese retailer has pledged to counter Couche-Tard's 7.4 trillion yen (S$67 billion) approach. That effort is being led by Stephen Dacus, Seven & i's newly appointed chief executive officer who will preside over Tuesday's (May 27) meeting for the first time.
While Seven & i has been slow to engage with its Canadian suitor, the operator of 7-Eleven stores has recently signed a non-disclosure agreement (NDA) to share financial data with Couche-Tard. It's also agreed to explore a sale of 2,000 overlapping North American convenience stores – a pre-requisite to resolve any antitrust concerns. These steps appear to have been enough to put shareholders into wait-and-see mode.
Alain Bouchard, Couche-Tard's chairman, has said he could propose a higher price for Seven & i once he has a chance to take a closer look at the Japanese company's financial information.
Meanwhile, Seven & i is seeking to bolster its valuation through a series of strategic moves, including selling off underperforming retail assets, listing its US operations, buying back shares and appointing new leadership.
'The real significance lies in execution of these measures, whether these steps translate into sustained financial performance and a stock re-rating,' said Bloomberg Intelligence analyst Lea El-Hage. Shareholders are waiting for 'tangible execution', she added.
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That appears to be the approach taken by Artisan Partners, which last year urged Seven & i to negotiate a deal with Couche-Tard for a takeover price that maximises shareholder value.
While Seven & i's shares have bounced back from lows after the restructuring measures were announced, its market value remains at 5.66 trillion yen, roughly 23 per cent below the price the Couche-Tard is willing to pay.
The NDA between the companies includes a standstill provision, which are usually designed to prevent a potential buyer from making a hostile bid. In the meantime, it will probably take months for Couche-Tard to fully evaluate Seven & i's financials and for the company to show whether its restructuring efforts are gaining any traction.
Any future decisions by Seven & i will also be shaped by a board that will bring in five new directors. They are:
Shigeki Kimura, Seven & i executive vice-president
Takashi Sawada, former CEO of Familymart
Masaki Akita, chairman of Matsuya
Tatsuya Terazawa, former Ministry of Economy, Trade and Industry director general
Christine Edman, former Hennes & Mauritz Japan president
For now, stakeholder advisory firm Institutional Shareholder Services has endorsed the board candidates, who are likely to be passed at Tuesday's meeting.
'Shareholders are not as disappointed as they were,' said Lorraine Tan, an analyst at Morningstar Asia. 'Criticisms have been partly appeased.' BLOOMBERG
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