Mergers & Acquisitions

Investor Suggests Breakup of 7-Eleven Parent Company: Report

ValueAct Capital leveraging stake in Seven & i to push for change
Photograph: Shutterstock

SAN FRANCISCO —  An activist investor that has built up a sizable stake in 7-Eleven Inc.’s parent company may have its sights set on breaking up the retail company to increase the value of its investment, according to a Reuters report.

ValueAct Capital, a hedge fund with a substantial stake in Seven & i Holdings Co. Ltd., told investors this week that Seven & i could be worth more than double its current value if the company restructures itself to focus on convenience stores or if it spins off 7-Eleven, the report said.

San Francisco-based ValueAct has built a 4.4% stake in Tokyo-based Seven & i—worth $1.53 billion—and the activist investor believes that the sum of its parts is worth much more than its current market value.

“We invested in Seven & i Holdings at an estimated P/E [price-to-earnings] ratio of 11 times, while global peers trade at 15 times to 25 times,” ValueAct Capital said in a letter to investors obtained by Reuters. 7-Eleven’s convenience stores are a consistent, high-return business, while Seven & i’s other retail and financial assets have not contributed to cash flow recently even though they are backed by valuable assets, the investment firm said.

Seven & i owns approximately 170 retail companies with more than 70,000 stores worldwide. Along with 7-Eleven Inc., major subsidiaries include c-store chain Seven-Eleven Japan, department store chains Ito-Yokado Co. and Sogo & Seibu, Seven & i Food Systems, Tower Records Japan and Seven Bank.

7-Eleven Inc. referred a CSP Daily News inquiry to Seven & i. A spokesperson for Seven & i said, “We refrain from communicating on individual shareholder matters. Not only in this case, but also in the future, we will continue to engage in dialog with our shareholders.” ValueAct Capital did not immediately return a request for comment.

ValueAct has engaged with Seven & i’s board and management and is optimistic that it can continue to build trust and alignment with the company, it said in the letter, which reflects ValueAct’s style of collaborating with management by making suggestions instead of dictating terms, said Reuters.

In 2017, Seven & i restructured by breaking out its U.S. and overseas operations into a separate operating segment to focus on its c-store business. The company changed from its previous seven segments—convenience-store operations; superstore operations; department store operations; food services; financial services; mail order services; and others—to seven new segments: domestic convenience-store operations; overseas convenience-store operations; superstore operations; department store operations; financial services; specialty-store operations; and others.

Under the new strategy it managed domestic and overseas operations separately to reflect their different market attributes. The domestic unit controls c-store interests in Japan, as well as in China and Hawaii, while the overseas unit controls Irving, Texas-based 7-Eleven Inc. and its c-store interests in other countries.

Seven & i went through a management power struggle in 2016 resulting in the resignation of the company’s CEO, Toshifumi Suzuki, who failed to win board support in his bid to oust Ryuichi Isaka, head of its c-store subsidiary Seven-Eleven Japan Co. Seven & i then promoted Isaka to president.

In May 2016, Isaka said he planned to increase the number of 7-Eleven c-stores in the United States to boost overall market share. 7-Eleven is striving to reach 10,000 c-stores in North America, Isaka said. “We will speed up expansion in North America by accelerating acquisitions.”

7-Eleven operates, franchises or licenses more than 72,800 stores in 17 countries, including more than 9,500 in the United States. A previously announced plan for long-term expansion had called for up to as many as 20,000 stores within several years. In 2017, Seven & i acquired approximately 1,110 c-stores from Sunoco LP for $3.3 billion. And in 2020, Seven & i spent $21 billion to acquire the Speedway c-store network from Marathon Petroleum in a deal expected to close within weeks.

ValueAct Capital is an active investor that identifies companies that appear to be out of favor or may be undergoing a significant transition. according to Wikipedia. ValueAct makes a significant investment into the company and then works with the company to make changes with the goal of increasing long-term stock value and thus creating a profit for ValueAct. Its history includes investments in Microsoft, Rolls Royce, Halliburton, Morgan Stanley and Sara Lee.

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