Sign on a Seven-Eleven Store in New York City (©Kyodo)
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Convenience store giant Alimentation Couche-Tard was pushing to acquire Japan-based Seven & i Holdings, owner of the ubiquitous Seven-Eleven convenience stores. However, the Canadian company withdrew its takeover offer on July 16.
Couche-Tard cited a "lack of constructive discussions" as the reason for withdrawing its bid. It also criticized management at Seven & i Holdings for an inadequate response to its earlier offer. But, it also denied there is any possibility of it launching a hostile takeover bid.
Seven & i Holdings will now be free to pursue its own independent course. However, the company's shares have yet to surpass the price level they held on the day before Couche-Tard withdrew its takeover bid. This could indicate that the market is skeptical of Seven & i's ability to achieve growth on its own. The company now needs to demonstrate a compelling strategy for adding value.
Couche-Tard's Bid
Couche-Tard's takeover bid became public knowledge in August 2024. Subsequently, the Canadian company boosted its offer to ¥7 trillion JPY ($46 billion USD at the time). Due to the weak yen, foreign companies appeared eager to acquire Japanese companies. Couche-Tard's takeover attempt became a symbolic example of this trend.
Although the takeover bid for Seven & i Holdings has been withdrawn, Japanese company executives should recognize that the basic situation has not changed. Companies that have growth potential but are unable to increase their corporate value are at risk of being acquired and should be managed with a sense of crisis.
In order to avoid being bought up, such businesses need to pursue structural reforms and improve their market valuation. Gradually, the longstanding tendency for companies to engage in crossholding shares with other companies to strengthen relationships with business partners is being eliminated. Japanese companies should instead realize that the best takeover defense is to improve profitability and raise their share prices.
Activist Shareholders
As activist shareholders become more prominent, Japanese companies are increasingly looking to return profits to shareholders. That includes strategically buying back their own shares to boost stock prices.
But there is no guarantee that stock prices inflated through such shareholder buybacks can be maintained. Moreover, excessive shareholder buyouts can result in outflows of growth capital.
To effectively raise equity prices, it is essential to enhance real earning power through R&D, capital investment, mergers and acquisitions, and other such means. Sustainable growth also necessitates rewarding employees with wage increases. As important, companies must appropriately pass on increased costs through the prices offered to trading partners in the supply chain.
Companies must look for growth strategies that will lead to increased corporate value over the medium- to long-term.
RELATED:
- Survey: 70% of Japanese Companies Expect Rise in Inbound M&A
- Barbarians at the Convenience Store: Dawn of Hostile Takeovers in Japan
- Seven & i Takeover Drama a Strong Clue for Japanese Management
Author: Editorial Board, The Sankei Shimbun
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