[Reuters Breakingviews] Seven & i hurtles towards a shareholder showdown

MUMBAI, Feb 27 (Reuters Breakingviews) - In Japan these days there is nothing quite like an annual meeting to focus the mind of a company losing its strategic way. After six months of defending itself against a takeover by Canada's Alimentation Couche-Tard ATD.TO, convenience store owner Seven & i 3382.T is hurtling towards a showdown with its long-suffering shareholders.

The $42 bln company's stock fell 11% on Thursday after its founding family gave up trying to take it private. The clan's audacious effort to thwart the Circle-K owner's approach required an equity cheque of 4 trillion yen, roughly $27 billion. It also would have forced the buyer into a potentially tricky initial public offering of its U.S. business to pay down large loans. No wonder shares of its prospective consortium partners, including Japanese trading house Itochu 8001.T and Thailand's CP All CPALL.BK, rallied after the attempt collapsed.

Some of the delay in engaging Couche-Tard was productive: an initial rebuff by the Seven & i board's special committee led by Stephen Dacus quickly forced the Canadians in September to boost their tentative offer up to $18.19 per share, valuing the equity at a compelling $47 billion at current exchange rates. That remains 54% above the undisturbed share price and 27% higher than where the stock currently trades, even after the latest tumble. But there has been no progress in the months since the revised proposal.

If the Japanese want to lock in these gains, Seven & i needs to engage more urgently with Couche-Tard to find a way through antitrust hurdles in the U.S. where they both have stores. It's unclear how competition authorities under President Donald Trump’s administration will react to the cross-border combination, but the well-financed Canadians are unlikely to go hostile, and Seven & i's stock will plunge without a suitor.

That puts the focus on what proposals, if any, Seven & i's vocal shareholders including funds like Artisan will propose for the AGM in May. They could nominate their own directors to the board. Ahead of the meeting, Seven & i also could firm up its own plans to unlock value, including a disposal of its stake in $2.3 billion Seven Bank 8410.T. That's too small to be a strong plan B to the failed buyout, however. Investor gatherings have become tense affairs in Japan as a government-backed value push gathers pace. Seven & i and its CEO Ryuichi Isaka may soon feel the pointy end of their years of underperformance.

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CONTEXT NEWS

Seven & i confirmed on February 27 that its founding Ito family has informed the company that it was unable to secure the financing to submit a proposal to acquire the company. The development sent the stock down over 11% to 2,123 yen per share.

The Japanese company said it remained committed to exploring all opportunities to unlock value for shareholders and continues to assess its options, including a takeover proposal from Canada’s Alimentation Couche-Tard.

Seven & i added that its special committee is “engaging constructively” with the suitor to establish if a proposal can be achieved that addresses “serious U.S. antitrust challenges” the transaction would face.

Japan’s Itochu said on February 27 that it ended its interest in participating in a buyout of Seven & i. The trading house's shares rose 5% following its statement.

Thailand's Charoen Pokphand (CP) Group subsidiary CP All re-affirmed in a statement on February 26 that it had no intention of participating in the investment in a "Japanese retail company". CP All shares rose 10% on the day.

A Couche-Tard spokesperson said, “Couche-Tard remains committed to reaching a mutually agreeable transaction that benefits both companies' customers, employees, franchisees and shareholders, creating a global retail champion".

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