EDITORIAL | Seven & i Takeover Drama a Strong Clue for Japanese Management

Seven & i Holdings is the owner of the 7-Eleven convenience store chain. Now it has received a takeover offer from Canadian convenience store giant Alimentation Couche-Tard (ACT). 

Details of the proposal, including the amount offered, have not been disclosed. However, Seven & i has characterized it as a "non-legally binding initial acquisition proposal." 

A special committee of outside directors has begun examining the suitability of the proposal. It plans to "carefully, comprehensively and promptly consider [the proposal] and respond."

Why Now?

Seven & i is subject to the provisions of the Foreign Exchange Law, which restricts foreign investment in Japanese companies. Japanese firms have traditionally grown by acquiring overseas companies. However, currently, the yen is very weak. Therefore, overseas companies may have developed an increased appetite for acquiring Japanese companies with low market valuations. 

Japanese company executives should not ignore the takeover bid for Seven & i. Rather it should be taken as a warning to Japanese companies that have been slow to implement structural reforms despite having growth potential.

As operator of the convenience store chain "7-Eleven Japan" among other holdings, Seven & i is Japan's largest retail group. However, its supermarket business, including its subsidiary Ito-Yokado, continues to struggle. 

The company has been under pressure from activist investors overseas who want it to carry out structural reforms. Management efficiency has also become an issue. 

Alimentation's Aims and Advantages

Alimentation operates convenience stores in North America and Europe. It is not as large as Seven & i in terms of business scale. However, its market capitalization is significantly larger ー about 1.5 times. 

The Canadian company had previously approached Seven & i about a takeover, but no agreement was reached. The motivation behind the new takeover proposal may be that Seven & i's market valuation has fallen to a low level. As a result of the company's delays in restructuring, its shares have also dropped to a relatively low price. 

Japan's corporate world has also been moving away from the cross-shareholding business custom. In the past, friendly companies held each other's shares to strengthen relationships with business partners. Now, however, if Japanese companies want to avoid being taken over from the outside, they should improve their market valuations by undertaking structural reforms. 

What is called for now are concrete measures where companies effectively use their accumulated capital to increase their earning power. Rather than sitting on their laurels, now more than ever Japanese companies need to work to improve their corporate value with a greater sense of urgency. 

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(Read the editorial in Japanese.)

Author: Editorial Board, The Sankei Shimbun