Seven & i Holdings Co.’s expertise in food procurement and retail sales, along with the board’s commitment to maximize long-term shareholder value, is the right strategy for the retailer, the company’s directors said in a letter responding to activist fund ValueAct Capital Management LP.
(Bloomberg) — Seven & i Holdings Co.’s expertise in food procurement and retail sales, along with the board’s commitment to maximize long-term shareholder value, is the right strategy for the retailer, the company’s directors said in a letter responding to activist fund ValueAct Capital Management LP.
The memo, released on Tuesday and the second in as many weeks, is part of an ongoing debate between the Japanese retailer and its investor, which said in a 150-page presentation earlier on Tuesday that Seven & i’s management has failed to deliver shareholder value, embrace corporate governance and restructure the business.
The public back-and-forth is likely to continue through May 25, when Seven & i is scheduled to hold its annual general meeting. ValueAct has proposed new board members with a mandate to pick a new president to replace Ryuichi Isaka. The Tokyo-based retailer has called on shareholders to back Isaka and its nominees, saying that the investor’s proposals will damage its competitiveness.
“ValueAct is not interested in realizing long-term value creation, and instead is pursuing a narrow agenda to achieve a short-term payout,” Seven & i said. A spokesperson said the company is examining ValueAct’s latest presentation.
Seven & i has about 85,000 stores worldwide, including the Speedway gas-station franchise in the US. The company is best known for its 7-Eleven stores, and its operations include Denny’s Corp.’s Japan restaurants, the Ito-Yokado supermarket chain and even its own bank.
The retailer overhauled its board in 2022 so that a majority would be independent outside directors. The company has also taken steps to shed less profitable businesses. In November it announced a sale of its Sogo & Seibu Co. department store for an enterprise value of about ¥250 billion ($1.8 billion) to private equity firm Fortress Investment Group. The transaction, which was scheduled to complete in March, is delayed, it has said.
Seven & i announced on March 9 the closing of roughly one out of every four of its Ito-Yokado shops in Japan to focus more on its core food and convenience-store operations, marking the retailer’s latest response to pressure from ValueAct.
ValueAct has been urging Seven & i to improve its valuation and “pursue bold, structural reform and pursue it with urgency.” The investor is pushing Seven & i to narrow its business focus to 7-Eleven, which it said could become a global champion as a convenience store franchise and boost the company’s value.
Seven & i rejected ValueAct’s push for a spin-off of the 7-Eleven franchise by the end of the current fiscal year on February 2024, calling it “hasty.” Seven & i earlier this year appointed a review committee of outside board members, who will recommend changes and oversee the execution of strategy.
“We have never said never to any strategic options that could create value for our shareholders, including a separation, spin-off, or IPO,” the retailer wrote in the letter, adding that “now is not the right time to pursue any of those options.”
Seven & i’s “disappointing response” to ValueAct’s proposals underscores its “belief that its shareholder proposals proposed at the 2023 annual general meeting are necessary,” the investor said last week. In its presentation on Tuesday, ValueAct said that Isaka’s seven-year term as CEO has resulted in “stakeholder harm,” as well as “weak execution and underperformance.”
“ValueAct’s demands – forcing a change in governance, removing our CEO, and conducting a near-term spin-off of 7-Eleven – would hurt long-term value by disrupting our transformation,” Seven & i’s directors said in Tuesday’s letter.
The retailer’s stock has delivered total shareholder return of 88% since the acquisition of US gas-store chain Speedway in 2020, as well as a 9% since the board was revamped a year ago, according to the directors.
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