Poison pills will hurt Seven & i and Japan
The authors are Reuters Breakingviews columnists. The opinions expressed are their own. Updates to add graphic and rephrases second paragraph.
By Una Galani and Anshuman Daga
MUMBAI, Aug 28 (Reuters Breakingviews) -An iconic company appears to be failing an acid test on Japan Inc reforms. Seven & i 3382.T is seeking a higher level of government protection barely a week after the $38 billion company confirmed Canada's Alimentation Couche-Tard ATD.TO had made a preliminary takeover offer. It's a reflex reaction that an administration trying to shake off three decades of stagnation and promote economic growth needs to avoid.
There are many reasons Tokyo should resist granting this poison pill of sorts. The owner of 7-Eleven convenience stores wants a status that would require any entity taking a more than 10% stake in the company to notify the government beforehand, Bloomberg reported on Tuesday citing unnamed sources. That would effectively prevent a dawn raid on its shares.
The most-protected status is assigned to a wide range of more obviously sensitive companies including Toyota Motor 7203.T, SoftBank Group 9984.T and chipmakers Tokyo Electron and Renesas Electronics 6723.T, per a list updated in 2021. The designation requires a buyer to make greater disclosures but doesn't necessarily prevent a foreign takeover. IT specialist Fuji Soft 9749.T has it and is under a tender offer from U.S. private equity firm KKR KKR.N, for example. Awarding the status, especially after a bidder has already shown interest, would, however, take some fairness and heat out of a value-creation process for a badly underperforming company. It also would be hard to justify putting a retail company in that category.
Japan's foreign investment regime is supposed to offer buyers predictability about the process they will face. Tokyo would in any event need to clear a deal if one is agreed. Acting earlier than it needs to would undermine the drive by the Minister of Trade, Economy and Industry to force companies to focus on shareholder returns and properly consider bona fide offers. Other Japanese companies are, by contrast, starting to shed variousM&A defences.
Ultimately, fewer bidders for Seven & i may emerge if the government changes the company's status while it is in play. Japanese trading giants have been doubling down on food businesses as they seek to reduce their heavy exposure to commodities. Mitsui for example, already owns 2% of the target. Itochu 8001.T in 2020 acquired FamilyMart, a rival Japanese convenience store franchise, while telecoms carrier KDDI 9433.T took private another, Lawson, this year. Yet it was an approach from an outsider, Couche-Tard, that has givenSeven & i's shares an 18% bump, and multiple bankers have told Breakingviews that foreign private equity firms are now sizing up the opportunity.
The best course for the government is to ignore Seven & i's request, wait on the sidelines and ensure a fair process.
Follow @ugalani and @anshumandaga on X
CONTEXT NEWS
Seven & i wants the Japanese government to require prior notification of any purchase of its shares above 10%, Bloomberg News reported on Aug. 27, citing people familiar with the matter.
The Japanese operator of 7-Eleven stores has applied to upgrade its "non-core" company status to "core" under the Foreign Exchange and Foreign Trade Act, it added.
The company's shares fell 2% in early trade on Aug. 28 to 2,080 yen, 18% above their price on Aug. 16, the last trading day before it confirmed a preliminary takeover offer from Canada's Alimentation Couche-Tard.
Graphic: Seven & i's share ownership is fragmented https://reut.rs/3XmJG0m
Editing by Antony Currie, Ujjaini Dutta and Aditya Srivastav
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