THE BATTLE for control of Seven & i, the Japanese owner of 7-Eleven, has taken a number of surprising turns since Alimentation-Couche Tard (ACT), a Canadian retailer, offered to acquire the company in August. Seven & i has been looking for ways to wriggle out of the takeover ever since. First came a rival proposal for a management buyout orchestrated by the company’s founding Ito family, which collapsed owing to difficulties securing funding. Then earlier this month the company appointed its first foreign chief executive, Stephen Dacus, an American. Mr Dacus has outlined a sweeping restructuring plan including an initial public offering of its American subsidiary next year, the sale of York Holdings, its supermarket chain, and a hefty share buyback.
Although welcome, those plans have not persuaded shareholders that Seven & i is better off on its own. “If the company pursues the standalone path, it needs to convince the market that it can raise its value above ACT’s reported offer price,” says Kuriyama Shunsuke, an analyst at Jefferies, an investment bank. “We have not seen that yet.” Nor has ACT given up on what would be the largest foreign takeover of a Japanese firm in history. The saga says much about the difficulty Japan faces making its corporate giants more attuned to the interests of shareholders.
Opposition to ACT’s proposal has taken various forms. Seven & i has pointed to possible antitrust hurdles in America, where 7-Eleven and ACT’s Circle K chain are the two largest convenience-store operators. Yet ACT has agreed to explore selling some stores to help mitigate that, and has already begun talks with potential buyers.
Another set of concerns relates to 7-Eleven’s significance to Japan. Despite its North American origins, the chain has become integral to life in the country. Convenience stores, or konbini, are “an essential part of Japanese infrastructure”, says Shimizu Michinori, a retail analyst. They are not just places to grab rice-balls and cookies, but serve as banking hubs and crucial supply points during natural disasters. The chairman of Itochu, a large Japanese trading house, recently declared that Seven & i’s fate was a matter of “national interest”. Government officials have expressed worries, too.
Those concerns demonstrate the challenge of reforming Japan Inc. The country’s firms have tended to prioritise customers, employees and suppliers ahead of shareholders. In recent years lawmakers and regulators have sought to change that. The Stewardship Code, introduced by the government in 2014, and subsequent rules set by the Tokyo Stock Exchange have improved transparency and pushed firms to prioritise shareholder value.
Some progress has been made. Cross-shareholdings—long used to cement business ties among Japanese firms and shield bosses from outside pressure—have gradually declined. Campaigns by activist investors have grown more common, and have succeeded in nudging many firms to make shareholder-friendly changes in recent years. Takeovers have also become a credible threat now that bosses are no longer able to dismiss proposals out of hand. The threat of acquisition is “a very strong form of gaiatsu”, says Mr Kuriyama of Jefferies, referring to the Japanese word for “outside pressure”, commonly used to describe how change in the country follows external shocks. Thanks in part to the reforms, Japanese shares have soared in recent years.
Yet the saga at Seven & i shows that change will take time. Meanwhile, tensions between the firm and its suitor are growing. At a press conference on March 13th, Alain Bouchard, ACT’s boss, said he was “disappointed” with the lack of engagement. “We have the deepest respect for Seven & i and the business they have built,” he declared, adding that “going hostile is not our plan.” He may not have a choice. ■
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