Board: Say No to Buyout

7-Eleven Inc. committee recommends that shareholders reject Seven-Eleven Japan's offer

DALLAS -- A special committee of 7-Eleven Inc.'s board has recommended that shareholders reject a buyout offer from majority owner Seven-Eleven Japan Co. The company said that the $32.50-per-share bid was inadequate, and that the tender offer was not in the best interests of the shareholders.

Dallas-based 7-Eleven added that its advisers are discussing an increased offer with Seven-Eleven Japan, but it could not promise that it would get a better proposal.

As reported in CSP Daily News, Seven-Eleven Japan Co. owns about 73% of [image-nocss] the U.S. company's stock. It announced on September 6 that it was making a $1.2 billion tender offer for the remaining shares.

Mitchell Corwin, an analyst at Morningstar, Chicago, told Reuters, "There's a good possibility that [Seven-Eleven Japan will] come in with a higher offer."

7-Eleven Inc.'s stock hit $36.13its highest level in at least five yearson the New York Stock Exchange (NYSE) on Tuesday. It was trading at $35.66, still 9.7% ahead of the offer price, at noon on Thursday.

"There's some shareholders that may not want to get taken out at this current price and perhaps there's some shareholders that may think that they can realize a higher stock price if the stock keeps going up at its current rate," Corwin added.

The $32.50 a share bid values 7-Eleven Inc. at 28 times analysts' expected 2005 earnings, according to Reuters.

Earlier this week, Seven-Eleven Japan, at the request of 7-Eleven Inc.'s special committee, had extended its offer until midnight, Eastern Time, on Tuesday, Oct. 18, 2005, from midnight Oct. 3, 2005, to provide the committee with additional time to complete its review and evaluation of the tender offer.

The extended offer remains subject to the other terms and conditions set forth in the offer to purchase, filed by Seven-Eleven Japan and its wholly owned subsidiary, IYG Holding Co.

Seven-Eleven Japan, which is Japan's largest convenience store operator with more than 10,000 locations, is 51% owned by Japanese retailer and Denny's franchisee Ito-Yokado. The company, which already holds 72.7% of the U.S. 7-Eleven, has offered $32.50 a share in cash for the remaining shares. There are about 32 million shares of 7-Eleven Inc. stock.

Seven-Eleven Japan said that in order to better compete in the market, 7-Eleven must boost investment in its merchandising, store renovation, distribution and logistics systems, and information systems. The increase in investment, however, is likely to result in lower growth and profitability for 7-Eleven in the short term, the company said. Seven-Eleven Japan also said it expects that taking 7-Eleven private would help achieve a better-governed group structure.