ValueAct questions Seven & i strategy, pushes 7-Eleven spin-off

(C) Reuters. FILE PHOTO: The logo of 7-Eleven is seen at a 7-Eleven convenience store in Tokyo, Japan December 6, 2017. REUTERS/Toru Hanai/File Photo/File Photo

By Svea Herbst-Bayliss

NEW YORK (Reuters) – ValueAct Capital is pushing Seven & i Holdings to explain its corporate strategy to shareholders including why it is not spinning off of its 7-Eleven convenience store chain or considering selling the whole company.

The investment firm, which owns a 4.4% stake and has been pushing for change since 2020, is ratcheting up pressure before the company’s April 6 earnings call and the annual meeting where it seeks to replace four board members.

“We have been unable to establish confidence in the management or governance of Seven & i,” ValueAct wrote in a letter to the company’s board dated April 2, adding recent communication heightened concern about “entrenchment.”

The investment firm, which has a track record of investments in Japan and has board seats at Olympus Corp and JSR Corp, has suggested a tax-free spin off of 7-Eleven or even a sale of the entire company.

A representative for the company was not immediately available for comment and ValueAct declined further comment beyond the letter.

Last month Seven & i signaled a “continuation of its status quo conglomerate structure,” which confused and disappointed markets, the letter said.

Now ValueAct wants answers to nine key questions when the company reports earnings this week.

Does the board understand how frustrating the conglomerate structure is to shareholders and has it evaluated the conglomerate discount, the investment firm asked.

And it wants to answers to which strategic alternatives were considered and why the company has not pushed ahead with a tax-free spin-off of 7-Eleven, something ValueAct had called on the company’s management to do in January.

The spin-off could be completed through a listing on the Tokyo Stock Exchange in roughly a year, ValueAct said earlier.

It also wants to know why the company is not putting itself up for sale and whether the board is aware of any takeover approaches for Seven & i in the last five years.

Seven & i said in March that it will close an additional 14 Ito-Yokado supermarket stores in Japan and fully exit its apparel business as part of a structural reform plan.

ValueAct’s latest letter underpins its effort to replace four board members on the company’s 14-member board with four director candidates that it has not identified publicly.