RPT-BREAKINGVIEWS-US 7-Eleven IPO will invite more unwanted suitors

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Hudson Lockett

HONG KONG, Jan 6 (Reuters Breakingviews) - In 1987 Southland Corporation, the Dallas-based operator of 7-Eleven then facing rumours of a Canadian takeover attempt, announced plans to move the company into private hands—namely those of its founding family. Now the Ito clan behind the American chain’s current Japanese parent could end up listing those convenience store operations in their own bid to maintain control. It's an imperfect solution to a pressing problem.

The initial public offering of Seven & i's 3382.T North American assets would seek to raise more than 1 trillion yen ($6.3 billion), following the proposed 9 trillion yen, roughly $57 billion, management buyout of Seven & i holdings led by the group’s founding Ito family, Bloomberg reported last month, citing sources.

That would help to pare down loans of 6 trillion yen planned to help finance the leveraged buyout and, by doing so, make the deal more palatable for the Japanese banks including Mizuho Financial 8411.T and Sumitomo Mitsui Financial 8316.T backing the bid intended to fend off a takeover approach from Canada’s Alimentation Couche-Tard ATD.TO.

Prior to Couche-tard's approach, the only planned IPO by Seven & i's management was that of its superstores business in Japan. This suggests listing the U.S. unit is mainly a result of Couche-Tard’s takeover bid, rather than a strategic move with long-term benefits for the group.

What's more, any new listing is likely to trade at a valuation discount to its unwanted suitor. The simplest yardstick for comparison is Seven & i’s global convenience store segment, given annual results show the U.S. business accounts for 95% of that segment’s external revenue.

The international business will generate EBITDA of 563 billion yen for the financial year ending February 2025, per Visible Alpha. On Couche Tard's multiple of 11, 7-Eleven US would be worth about $38 billion. That would require Seven & i to sell about 17% of the business to hit the reported fundraising target. But with profit margins lagging those of its rival-turned-suitor, it would probably command a lower multiple and need to sell more shares.

So while the promise of a listing may comfort banks financing a buyout and help to speed Seven & i’s exit from public markets, it risks creating a microcosm of the struggle that the family is contorting itself to avoid: Public scrutiny of its prized assets will increase, and more unwanted suitors may emerge.

Follow @KangHexin on X

CONTEXT NEWS

A 9 trillion yen management buyout of Seven & i, led by the group’s founding Ito family, is set to include a subsequent initial public offering of the company’s U.S. convenience store and gasoline station business, Bloomberg reported on Dec. 4, citing sources.

The IPO would seek to raise more than 1 trillion yen to help pay down loans from the Japanese banks which are financing the bid, which is intended to fend off a takeover by Canada’s Alimentation Couche-Tard.

(Editing by Una Galani and Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on LOCKETT/
hudson.lockett@thomsonreuters.com))