7-Eleven’s Japanese owner rejects Canadian takeover proposal, saying it ‘seriously undervalues’ the company

Seven & i Holdings has rejected a takeover bid from Canadian convenience store operator Alimentation Couche-Tard, saying the offer “is not in the best interests” of its shareholders and stakeholders.

In a filing with the Tokyo Stock Exchange, the owner of 7-Eleven revealed that Couche-Tard had offered to acquire all of Seven & i’s outstanding shares for $14.86 per share.

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Stephen Dacus, chairman of the special committee that Seven & i had formed to evaluate Couche-Tard’s proposal, said the proposal was “opportunistic and significantly undervalues ​​our standalone path and the additional avenues for action we see to realize and unlock shareholder value in the near to medium term.”

In April, Seven & i announced a corporate restructuring plan, aimed at expanding 7-Eleven’s global presence as well as divesting its underperforming supermarket operations.

Dacus wrote that even if Couche-Tard increased its offer “very significantly,” the proposal fails to address the “multiple and significant challenges” the acquisition would face from U.S. antitrust agencies.

“Beyond your simple assertion that you do not believe a merger would have an unfair impact on the competitive landscape and that you would ‘consider’ potential divestitures, you have provided no indication of your views on the level of divestitures that would be necessary or how they would be carried out,” he wrote in a letter that appeared to be addressed to ACT Chairman Alain Bouchard and was published in the Tokyo Stock Exchange filing.

He also noted that Couche-Tard’s proposal did not indicate any timeline for overcoming regulatory hurdles or whether the company was “prepared to take action.” all “take necessary steps to obtain regulatory approval, including by initiating legal action with the government.”

Dacus said Seven & i was open to sincerely considering proposals that are in the best interests of the company’s stakeholders and shareholders, but warned that it would also resist any proposal that “deprives our shareholders of the intrinsic value of the company or does not specifically address very real regulatory concerns.”

A shareholder speaks out

Speaking to CNBC’s “Squawk Box Asia” shortly before the response was filed Friday, Ben Herrick, associate portfolio manager at Artisan Partners, said Couche-Tard’s offer “highlights the fact that this management team and the board have not done everything in their power to increase the value of the company.”

Artisan Partners is a U.S. fund that holds a stake of just over 1% in Seven & i. In August, the fund reportedly urged Seven & i Holdings to “seriously consider” the takeover bid and to solicit offers for the company’s Japanese subsidiaries “as quickly as possible.”

Herrick said Artisan had asked Seven & i to review the offer because the fund believes overseas capital allocation has been neglected.

He said Seven & i’s Japanese convenience store business did not need much change, but said there was a “huge opportunity” in international licensees operating outside the United States.

“You have over 50,000 stores, or about 50,000 stores that generate about $100 million or a little over $100 million in operating income for the company. So I think there’s a big disconnect there,” he said.

Herrick also believes Seven & i has been slow to adopt changes due to a lack of oversight and accountability.

“We really need the company to implement its plan at a faster pace. That’s why (Seven President Ryuichi) Isaka and I introduced our 100-day plan in 2016 to reform (general merchandise store) Ito-Yokado. And we’re approaching the 3,000th day here. So I don’t think speed has played a big role in this culture, and that needs to change,” he said.

On Monday, Richard Kaye, portfolio manager at independent asset management group Comgest, disagreed in an interview on “Squawk Box Asia”, saying: “I don’t think there is a case for radical reform by a foreign acquirer.”

The company is doing a “phenomenal job” in terms of logistics and product innovation, and “I think it’s very difficult to assume that it could be done much better,” he added.