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Advisory Firm Backs ValueAct’s Push for Change at Seven & i

Institutional Shareholder Services supports board changes at 7-Eleven parent, activist investor says
seven & i
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Seven & i Holdings investor ValueAct Capital is gaining support in its campaign to get the retail company to spin off the 7-Eleven convenience-store chain.

Ahead of 7-Eleven Inc. parent Seven & i Holdings Co. Ltd.’s annual meeting of shareholders on May 25, Institutional Shareholder Services (ISS), a major proxy and corporate governance advisory firm, is supporting investor ValueAct’s efforts to bring a change of strategy and leadership to the Tokyo-based convenience-store company. ISS is recommending that shareholders elect all four of the investor’s board of director candidates, according to ValueAct.

In a statement issued on May 9, ValueAct said, “ISS has recommended that Seven & i shareholders vote against five of Seven & i’s director nominees and for all four of ValueAct’s highly qualified director nominees to elect them to Seven & i’s board of directors at the upcoming 2023 annual meeting of stockholders.”

“We are pleased ISS has recognized that ValueAct’s highly qualified nominees are the right choice for the Seven & i Holdings board of directors,” it continued. “A vote for ValueAct’s nominees will deliver what shareholders have requested for years—an objective strategic review, a careful president succession process, strengthened governance practices and the appointment of an independent chair. We believe Seven & i is at a pivotal point in its evolution, with a clear opportunity to create a global champion 7-Eleven company which will grow and create value for all stakeholders.”

San Francisco-based ValueAct, which owns 4.4% of Seven & i, is unhappy with the Tokyo-based global convenience-store company’s diversified structure and wants to increase its valuation by possibly spinning off its 7-Eleven convenience stores or considering other strategic alternatives. It is also pushing to replace four board members, including Ryuichi Isaka, Seven & i’s president.

“President Isaka has proven over his seven-year tenure that he is entrenched and has caused serious stakeholder harm,” ValueAct said in a previous statement and presentation to shareholders, Time for a Fresh Look at Seven & i Holdings. It also urged shareholders to vote for “a strengthened board that will conduct a careful and deliberate presidential succession and execute an objective and thorough review of strategy.”

Isaka and the other incumbent board members “should be held responsible for past underperformance and poor capital allocation,” ISS wrote in the recommendation cited by ValueAct.

ValueAct’s board nominees “would provide a shareholder perspective and the link to ValueAct’s extensive research capabilities and experience effecting change,” ISS said.

According to ValueAct, ISS also said:

  • The company can be seen as a strong Japanese c-store business that hides several underperforming businesses. … The underperformance at business units has been recurrent for over a decade, while the total returns of the company do not match what could be reasonably expected from a leading retail brand.
  • The company’s strategic plan, basically designed by insiders … leaves execution to the same management under the same corporate culture. Given the long-term track record, this is not reassuring for investors.
  • The company argues that the strength of the Seven-Eleven Japan operation relies on its links with this division’s food business… Seven-Eleven Japan is the largest food operation in Japan and three times the size of the superstores business in the food area, so the board’s conclusions do not appear intuitive.
  • The counterintuitive results of the latest strategic review raise questions about the current board’s ability to hold management accountable and instill a sense of urgency into reforms. Strengthening the board’s ability to oversee management seems to be a primary goal of this campaign.
  • Additionally, there are some potential red flags related to company culture, like the issues with the U.S. FTC [Federal Trade Commission] on the acquisition of Speedway, perhaps a symptom of weak or unclear reporting lines, and weak employee reviews vs. other Japanese retailers.

Meanwhile, Seven & i is attempting to assure shareholders that its current strategy is working and that it is planning longer-term action to enhance value.

In a letter to shareholders on May 2, Seven & i’s board said, “ValueAct’s demands—forcing a change in governance, removing our president and conducting a near-term spinoff of 7-Eleven—would hurt long-term value by disrupting our transformation, which has already begun to benefit our shareholders.”

Seven & i also said it is executing a “food-focused” strategy and is making investments in its convenience-store business.

“Seven-Eleven Japan’s competitive advantage in food is a result of collaboration with our group companies at each stage of the product development and procurement process. This network is difficult for peers to duplicate,” it said. “By leveraging our company’s extensive product development and supply network, our global [convenience-store] business can provide the highest-quality food offerings compared to our competitors—a true differentiator in the industry.”

Seven & i concluded, “Despite their determination to appear constructive, ValueAct is not interested in realizing long-term value creation, and instead is pursuing a narrow agenda to achieve a short-term payout. Our entire board, including the majority independent outside directors, stands behind our business plan.”

Seven & i was founded in 1920 as Ito-Yokado, a chain of department stores. In 1991, Ito-Yokado acquired majority control of 7-Eleven in the United States and internationally. Seven & i was established in 2005 as part of a corporate restructuring to serve as the holding company of Ito-Yokado, Seven-Eleven Japan, Denny’s Japan and other businesses.

Based in Irving, Texas, 7-Eleven Inc. operates, franchises or licenses more than 83,000 convenience stores in 19 countries and regions, including more than 13,000 7-Eleven convenience stores in the United States and Canada. In addition, it operates and franchises Speedway, Stripes, Laredo Taco Company and Raise the Roost Chicken and Biscuits locations.

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