Pressure is mounting on the owner of Japan’s largest convenience store chain, Seven & i Holdings, to spin off the company as investors grow frustrated with its ‘outdated’ governance and poor share price performance. of action.
Three of the top 30 shareholders, who previously told Seven&i they believe a major restructuring is needed, plan to submit proposals at the company’s annual meeting, scheduled for May or June, people say. close to the file.
US asset manager Artisan Partners, one of three shareholders, is among investors who say Seven&i, owner of convenience store brand 7-Eleven, has not kept pace with recent improvements in Japanese governance standards. They also claim he hasn’t fought hard enough to drive up his stock price, which has significantly underperformed the market for the past five years.
Investors have complained that businesses Seven&i operates outside of its lucrative convenience brand, such as department stores, are weighing on its stock and should be spun off from the group. Calls for a split have intensified since Toshiba investors forced it to launch a strategic review last year that ended with a recommendation to split the company into three.
Artisan Partners wrote to Seven&i board members this month, in a letter seen by the Financial Times, complaining about the company’s “outdated governance structure”, lackluster stock performance and low valuation.
Two of the shareholders told the FT they had specifically asked the company to consider a spin-off in recent months and were considering making formal proposals for change at the annual meeting.
The retailer has come under pressure from investors to previously reform 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 to address the distinct differences between the company’s valuable convenience store assets and the company’s other retail businesses,” said Artisan Partners, based in Wisconsin.
Seven&i declined to comment on “individual shareholder cases” and said it will “continue dialogue with [its] shareholders”.
In 2016, Third Point backed current chief executive Ryuichi Isaka in a board fight, but the sprawling conglomerate’s hoped-for turnaround failed to materialize, investors said.
Since then, however, shareholder activists have made inroads into Japan, a culture shift exemplified by the showdown over Toshiba between management and a group of global fund managers.
Artisan Partners, which manages $175 billion in assets, said in the letter that it owns about 1% of Seven&i shares and has been a shareholder since mid-2019.
For the six months to November, Seven&i’s department stores recorded an operating loss of 10.2 billion yen ($87 million) and Ito-Yokado and other supermarkets recorded a 49% decline in year-on-year, despite efforts to cut costs through a series of store closures. This contrasts sharply with the performance of its convenience store business, especially overseas, where operating profit increased by 56%.
The group should primarily appoint outside directors with relevant experience to its board and be led by an “independent and unaffiliated chairman”, Artisan Partners said in its letter.
Seven&i expanded its international operations with the $21 billion takeover of convenience store chain American Speedway, agreed in 2020.
Goldman Sachs analysts welcomed the move, but warned that if planned reforms to “low-margin businesses such as department stores and supermarkets” were slow, it would “pose downside risk to our earnings estimates and our target price”.