Seven & I Holdings Co. said it will consider strategic options, including spinoffs and public listings, as it seeks to boost shareholder returns in response to activist fund ValueAct Capital Management LP’s questions about its conglomerate structure.
A new review committee of outside board members will recommend changes and execute them, the eight independent directors said in a statement. Seven & I also announced a change to its finance and credit-card operations, and set a goal of delivering greater shareholder returns via better cash flow, payouts and growth in its convenience-stores business.
ValueAct has been pushing Seven & i to improve its valuation, calling on the Tokyo-based retailer to “pursue bold, structural reform and pursue it with urgency.” The investor is pushing Seven & I to narrow its business focus to 7-Eleven, which it said could become a global champion as a convenience store franchise and boost the company’s value.
“We are committed to rigorously assessing opportunities to create value for all stakeholders and adjusting our mid- and long-term strategies accordingly,” the directors said in the statement.
Earlier this week, the fund said it had “little confidence in the outcome” of the retailer’s current strategy, and called on management to respond to its questions in an open letter to the company’s board earlier this week. The global retailer is sticking to a conglomerate structure and the board isn’t considering strategic alternatives and should explain why, the activist investor wrote.
The company also received a recommendation for a new board structure from ValueAct that excludes four current members, chief executive officer Ryuichi Isaka said after the company released its earnings on Thursday. The proposal is being discussed internally and the company plans to respond within a week or two, he said.
“Our plan and the separate letter from the board members were comprehensive, and answered the questions to some extent,” Isaka said during an earnings call. “We’ll give a clear view by the company in mid-April.”
The retailer forecast operating profit of ¥513 billion ($3.9 billion) for the fiscal year to February 2024, short of the ¥526 billion ($4 billion) yen average projected by analysts. The outlook for full-year sales also fell a bit short of analysts’ expectations.
Seven & I said in presentation materials that it will keep paying out dividends, improve operating cash flow, embrace financial integrity and focus on growth in its convenience-store business in order to boost the ratio of total shareholder returns to 50 percent or more through fiscal 2025.
Within Seven & I’s financial operations, the company will transfer its Seven Card credit-card and electric-money business to Seven Bank, from its Seven Financial services unit.
Seven & I also sold off its Barneys Japan stores to retailer Laox Holdings Co., according a release by Laox. Terms of the deal weren’t disclosed.
Last April, Seven & I said it revamped its board so that a majority would be independent outside directors. In November it announced a sale of its Sogo & Seibu Co. department store for an enterprise value of about ¥250 billion ($1.9 billion) to private equity firm Fortress Investment Group. The transaction of the deal, which was scheduled to complete in March, is delayed, it has said.
Seven & I announced on March 9 the closing of roughly one out of every four of its Ito-Yokado shops in Japan to focus more on it core food and convenience-store operations, marking the retailer’s latest response to pressure from ValueAct.
The retailer’s shares fell as much as 12 percent after the March announcement, but have regained some of that drop to trade at around ¥6,000 ($45.53). The 7-Eleven global franchise, as a standalone listed company, could be worth as much as ¥8,500 ($64.50) a share, according to ValueAct.
Seven & i has more than 83,000 stores worldwide, including the Speedway gas-station franchise in the U.S. The company is best known for its 7-Eleven stores, and its operations include Denny’s Corp.’s Japan restaurants, the Ito-Yokado supermarket chain and even its own bank.
