Following the strategic initiatives Seven & i Holdings Co. Ltd. announced last week to sharpen the company’s focus on its 7-Eleven convenience stores as it attempts to fend off a takeover bid from rival global retailer Alimentation Couche-Tard, Artisan Partners International has sent a letter to Seven & i’s board with questions about the initiatives and urging it to engage more with Couche-Tard.
In August, Laval, Quebec-based Couche-Tard submitted a proposal, $14.86 per share or approximately $39 billion, to acquire Tokyo-based Seven & i, which rejected the proposal twice, saying it “undervalues” the company. Couche-Tard in October then raised its offer to $18.19 per share or approximately $47.2 billion. The company was also considering $58 billion management buyout intended to block Alimentation Couche-Tard’s takeover with funding from banks, trading company Itochu Corp. and the founding Ito family. In late February, Itochu withdrew from the buyout, dooming that effort.
Seven & i’s new initiatives, intended to improve the company’s performance while avoiding Couche-Tard’s advances, include a North American initial public offering (IPO) for 7-Eleven and a large, potential divestiture package that could be sold off if necessary for regulatory approval. They also include a leadership change, with Stephen Dacus, currently chairman of the board and lead independent director, succeeding Ryuichi Isaka as president and representative director and CEO. And they include the sale of some noncore assets to focus more on convenience.
Milwaukee-based Artisan Partners, a $45 billion long-term value investing platform that that been a Seven & i shareholder since 2019 and currently holds 1.11% of Seven & i shares, previously has called on the company to consider a bidding process that includes all competing acquisition proposals to secure the best offer rather than through a restructuring.
In its latest letter, dated March 9 and signed by N. David Samra, portfolio manager, and Benjamin L. Herrick, associate portfolio manager, the Artisan International Value Group contends there are many unanswered questions regarding the potential conflicts of interest with the appointment of Dacus as CEO and the company’s Special Committee that he has headed, and that it intends to oppose Dacus.
“We believe the board of directors has fallen short of acceptable global corporate governance practices,” the letter said. “There are serious questions surrounding the role of Mr. Stephen Dacus as chairman of the Special Committee, in light of the Nomination Committee’s selection of Mr. Dacus to be the company’s next CEO. Notably, Mr. Dacus served as a member of the Nomination Committee while his own role at the company was under consideration. Clearly, minimum corporate governance standards would have demanded Mr. Dacus resign from both of these committees while there are active bids for the company and while there was a succession process in place. As a result, shareholders can have no confidence that the Special Committee has run, nor continues to run, a thorough evaluation process.”
Shareholders are in an “uncomfortable” position, the letter said. “Mr. Dacus and the Special Committee determined that the initial offer from Alimentation Couche-Tard Inc. of $14.86 per share ‘grossly’ undervalued the company. Yet the company’s recent decisions under the leadership of the chairman of the board of directors, chairman of the Special Committee and chairman of the Nomination Committee have brought the company’s share price back down to $14.18 per share as of the Japanese market close on March 7, 2025, or roughly 22% below [Couche-Tard’s] latest offer of $18.19 per share, a price not materially different from the share price one year ago when none of these board decisions had been announced.”
The letter also said that “given the company’s poor performance in North America, we as shareholders again encourage the Special Committee to fully and meaningfully engage with [Couche-Tard], a company with a proven track record of operating excellence. In addition, the board should appoint a shareholder-recommended candidate to serve as chairman of the Special Committee. By taking these actions, the board will finally give shareholders reason to believe the [Couche-Tard] offer is being considered and evaluated in good faith.
“Given the … potential conflicts of interest and the poor performance of the company, including significant restructuring and the forced sale of loss-making operations after years of squandered investment, we see no reason why other stakeholders such as employees and franchisees should have confidence in current leadership. It is clear the board does not have a shareholder or a stakeholder mandate.
“In addition, given his inability to consummate the Ito-Kogyo takeover offer and the enormous distraction this created for the company and the Special Committee, we also intend to vote against Mr. Junro Ito.”
7-Eleven is No. 1 on CSP’s 2024 Top 202 ranking of U.S. c-store chains by store count. Alimentation Couche-Tard is No. 2.
Seven & i, Tokyo, operates convenience stores, superstores, supermarkets, specialty stores, foodservices, financial services and IT services. Irving, Texas-based 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.
Alimentation Couche-Tard, Laval, Quebec, operates in 31 countries and territories, with more than 16,700 stores. Its network includes more than 7,100 stores in the United States, primarily under the Circle K banner.
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