Mergers & Acquisitions

Seven & i, ValueAct Take Their Cases to Shareholders

C-store company, major investor continue sparring match over 7-Eleven governance, strategy as annual meeting looms
Seven & i ValueAct Capital
Image courtesy of ValueAct Capital

Convenience-store company Seven & i Holdings Co. Ltd. and one of its most prominent investors, ValueAct Capital, have staked out their respective positions about the company’s future and are making their final pleas to shareholders ahead of the annual meeting on May 25.

Seven & i is attempting to assure shareholders that its current strategy is working and that it is planning longer-term action to enhance value. ValuAct is advancing a plan that it believes will enable the company to increase shareholder value through new leadership and a fresh retail strategy.

ValueAct Action

In a statement and presentation to shareholders, Time for a Fresh Look at Seven & i Holdings, released on Monday, ValueAct said, “President Isaka has proven over his seven-year tenure that he is entrenched and has caused serious stakeholder harm.” 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.”

“The president has ignored longstanding shareholder concerns with the status quo conglomerate strategy, [he] has established a seven-year track record of weak execution and underperformance, [and he] has acted in bad faith to maintain his status quo strategy,” ValueAct said. The president also failed to disclose a takeover approach in 2020, and “shareholders were denied the chance to consider selling their shares at a premium.”

The investor is also pushing for a restructuring in favor of 7-Eleven, rather than the current broader approach.

“In aggregate, the non-7-Eleven businesses lose money and have not created corporate value,” ValueAct said. “7-Eleven has not been able to reach its full potential because management attention and corporate resources are over-allocated to turning around the non-core businesses versus the global growth of 7-Eleven. … The conglomerate structure experiment which began in 2005 is now outdated and has clearly failed.”

“ValueAct invested in Seven & i Holdings with the strong belief that with greater focus, 7-Eleven could become the best convenience store operator in the world. ValueAct has submitted shareholder proposals because they have concluded that change is needed for 7-Eleven to reach its full potential,” it said.

Long-Term Value

In a letter to shareholders on Tuesday, 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 said it is executing a “food-focused” strategy and is making investments in its convenience-store business. It also reiterated its commitment to capital re-allocation and ongoing portfolio optimization “undertaken in the right way and at the right time,” it said.

“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.”

And regarding a spinoff of 7-Eleven, Seven & i said, “ValueAct’s demand to conduct a hasty spinoff of [convenience] would disrupt these critical product development efforts, fragment our food ecosystem in the supply chain network and damage our competitive position before we are ready to embark on further portfolio optimization, risking the potential for long-term value creation.”

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 said.

San Francisco-based ValueAct Capital, established in 2000, is a global investment firm managing capital on behalf of large institutional investors.

Seven & i, based in Tokyo, 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.

Seven & i Holdings operates in seven business segments:

  1. Domestic Convenience Store Operations. Engaged in the convenience-store business based on direct management and franchise systems, such as the operation of 7-Eleven stores in Japan.
  2. Overseas Convenience Store Operations. Engaged in the operation of convenience stores, such as 7-Eleven Inc. in the United States. 7-Eleven Inc. is No. 1 on CSP’s 2023 Top 40 update to the 2022 Top 202 ranking of U.S. convenience-store chains by store count.
  3. Superstore Operations. Engaged in a retail business that provides food, daily necessities and other items.
  4. Department Store Operations. Engaged in the retail business.
  5. Financial Services. Engaged in the banking, credit card and leasing businesses.
  6. Specialty Store Operations. Engaged in the retail business that provides specialized products and services.
  7. Others. Engaged in the real estate business.

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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