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The Japanese 7-Eleven operator is currently considering defending itself against a takeover bid by Canadian company Alimentation Couche-Tard. Among other things, it could apply for the same status as companies in the nuclear and semiconductor industries.
Two people close to Seven & i Holdings said such a tactic was one of several options being considered in an attempt to persuade the government to change the company from a “non-core company” to a more protected “core company” under Japan’s Foreign Exchange and Foreign Trade Act (Fefta).
A spokesman for Seven & i declined to comment.
Internal discussions on the means to fend off such a takeover bid began just ten days after Seven & i publicly acknowledged that it had received a preliminary proposal for a full takeover by Couche-Tard and had set up a special committee of independent board members to examine the offer.
Since this announcement, Seven & i shareholders have described Couche-Tard’s friendly approach to date as a litmus test for Japan’s political, legal and social attitude towards mergers and acquisitions.
“It looked like Seven & I did everything right by relying on a special committee. But if they’re already talking about defense tactics behind the scenes, that suggests that whatever the special committee decides, at least one group within this company is not approaching it with the mindset of what’s best for shareholders,” said one investor who has held the stock for over three years.
Seven & i has a market capitalization of more than $38 billion. A successful takeover of the company – which has been a repeated target of shareholder activism and has offered relatively little value to investors for eight years – would be Japan’s largest takeover by a foreign buyer.
The special committee, whose deliberations are due to end in mid-September, was set up in line with the government’s recently revised M&A guidelines, which encourage Japanese companies that may have ignored serious offers from potential buyers in the past to now take them seriously and give due consideration to the impact on shareholders.
Investors argue that Couche-Tard’s takeover offer, while friendly, is a response to the long-term failure of Seven & i’s managers to protect their interests.
Ben Herrick, associate portfolio manager at Artisan Partner International Value Team, which owns a stake in Seven & i, said the management team had to some extent brought the situation on themselves. “They have put value creation opportunities on the back burner and are showing no sense of urgency. I don’t think they realise that this is why we are in this current situation,” he said.
Under the current Fefta status, a takeover of Seven & i would only require government approval once a deal has been agreed. If the government could be persuaded to upgrade to “core”, a potential foreign buyer would have to be subject to a Treasury review.
M&A lawyers in Tokyo who have handled Fefta-related matters said applying for “core” status was not easy and not necessarily successful. To convince the government that convenience stores are critical infrastructure in the event of natural disasters, one would have to prove that this role was in some way compromised by foreign ownership, the lawyers said.
However, Nicholas Smith, Japan strategist at CLSA Securities, pointed out that Seven & i is a conglomerate with 180 affiliates whose businesses include banking, an insurance agency, the sale of gasoline, freight transportation and agricultural products. This list could prompt closer regulatory scrutiny of a foreign takeover bid.
