Pressure is building on Seven & i Holdings, the owner of Japan’s largest convenience store chain, to split the company as investors grow increasingly frustrated with “outdated” governance and poor share price performance.
Three top-30 shareholders, which have previously told Seven & i that they believed a sweeping restructuring was necessary, are considering submitting proposals at the company’s annual meeting, expected in May or June, according to people familiar with the matter.
US-based asset manager Artisan Partners, one of the three shareholders, is among the investors that said Seven & i, which owns the 7-Eleven convenience store brand, had failed to keep pace with recent improvements in Japanese governance standards. They also argued that it had not fought hard enough to boost its share price, which has significantly underperformed the market over the past five years.
Investors have complained that the businesses that Seven & i operates outside its lucrative convenience store brand, such as department stores, are weighing on its stock and should be separated from the group.
Calls for a split have intensified since investors in Toshiba last year forced it to launch a strategic review that resulted in a recommendation to divide the company in three.
Artisan Partners wrote to the board members of Seven & i this month complaining of the company’s “outdated governance structure”, lacklustre stock performance and low valuation, according to a letter seen by the Financial Times.
Two of the shareholders told the FT that they had specifically asked the company to consider a split within the past few months and were considering making formal proposals for change at the annual meeting.
The retailer has previously come under investor pressure to reform from activist funds including Daniel Loeb’s Third Point and ValueAct, but this is the first time a long-term investor has voiced concerns.
“The company needs a stronger board of directors to address the distinct differences between the company’s valuable convenience store assets and the company’s other retail businesses,” said the Wisconsin-based Artisan Partners.
Seven & i declined to comment “on individual shareholders’ cases” and said that “it will continue to engage in dialogue with [its] shareholders”.
In 2016, Third Point backed now-chief executive Ryuichi Isaka in a boardroom tussle but the hoped-for turnround of the sprawling conglomerate has not materialised, the investors said.
Since then, however, activist shareholders have made inroads in Japan, a shift in culture exemplified by the showdown over Toshiba between the management and a cast of global fund managers.
Artisan Partners, which has $175bn of assets under management, said in the letter it owned about 1 per cent of Seven & i shares and had been a shareholder since mid-2019.
For the six months to November, Seven & i’s department stores posted an operating loss of ¥10.2bn ($87m) and Ito-Yokado and other supermarkets recorded a 49 per cent year-on-year decline despite efforts to cut costs through a series of store closures. That was in stark contrast to the performance of its convenience store businesses, notably overseas, where operating profit was up 56 per cent.
The group should appoint mostly outside directors with relevant experience to its board and be led by an “unaffiliated, independent chair”, Artisan Partners said in its letter.
Seven & i expanded its international operation with the $21bn takeover of American Speedway convenience store chain, agreed in 2020.
Analysts at Goldman Sachs praised the move but warned that if planned reforms of “low-margin businesses such as department store and superstore” were slow, that “would see downside risk to our earnings estimates and target price”.
