TOKYO — Seven-Eleven parent Seven & i Holdings faces growing pressure to spin off operations beyond its mainstay convenience store business after U.S. activist investor ValueAct Capital emerged as one of its leading shareholders.
ValueAct told investors in a Wednesday letter that the 7-Eleven business could be worth more than double what Seven & i is currently valued at if the parent focuses on the convenience store business, or if the business is spun off, Reuters reported. The fund now reportedly holds a more than 4% stake in Seven & i.
The news was received favorably by the market, with Seven & i shares rising to a year-to-date high of 4,930 yen at one point Wednesday on hopes that a breakup could boost profitability.
“The company’s structural reforms had been lacking in speed and substance, but there is growing hope that [ValueAct’s stake] could accelerate the efforts,” said Dairo Murata at JPMorgan Securities Japan.
ValueAct’s purchase comes after Seven & i announced plans last year to acquire U.S. convenience store chain Speedway for $21 billion. The deal, which is currently underway, expands Seven & i’s U.S. footprint to roughly 13,000 stores — over double its next-largest rival.
Seven & i has earned about 60% of its group operating profit from convenience stores in Japan. The Speedway acquisition only increases the share of convenience stores in the company’s earnings.
Seven & i has attempted to shed its dependence on the domestic convenience store market through a string of purchases at home. In 2006, the group converted Millennium Retailing, the operator of the Sogo and Seibu department stores, into a full subsidiary. Seven & i also acquired the high-end chain Barneys Japan and the mail order company Nissen Holdings.
But operations outside of the convenience store business faltered. During the last fiscal year through February, the department store segment bled 6.2 billion yen in operating losses, down from a 790 million yen profit the previous year. Specialty shops turned in a 13.5 billion yen loss in fiscal 2020.
These losses have weighed on the earnings of convenience stores and supermarkets. ValueAct appears to think that having Seven & i focus on convenience stores will lift profits.
This would not the first time Seven & i received unsolicited advice from an American investment firm to sell off unprofitable businesses. Between 2015 and 2016, Daniel Loeb’s Third Point demanded that the company restructure loss-making operations and commit to more generous shareholder returns.
The ensuing boardroom battle resulted in the resignation of then-Chairman and CEO Toshifumi Suzuki and a new leadership slate.
ValueAct, formed in 2000, has risen to become an emblematic U.S. activist investor. The firm has so far taken a friendly approach with Japanese investment targets, but Seven & i is certain to face increasing pressure to jettison unprofitable assets.
For now, Seven & i is keeping tight-lipped on the situation.
“We will continue to communicate with our investors,” said a company spokesperson.
