STRATEGY FOR SEVEN & I
How to push Couche-Tard up? Forget the Seven & i’s designation of being “core” to Japan’s national security. The case rests on value.
The good news is that Seven & i has the right strategy: Focus on convenience stores and expand globally, jettisoning other formats. Governance has improved with the appointment of a chair separate from the chief executive officer role, along with an independent strategy committee. These developments followed pressure from activist ValueAct Capital.
What remains is to provide confidence around delivery. The company sent mixed messages in April, with contrasting statements on the future of its superstores giving the impression of internal disagreement. The company now says it has “actionable avenues” to unlock value. Time to show, not tell.
The quick win would be to sell all non-core holdings. A straightforward exit from superstores would be quicker and simpler than the initial public offering the company is considering. A near-50 per cent stake in Seven Bank, with a US$2.4 billion market capitalisation, could command a premium price.
Seven & i could also announce immediate moves to ramp up cost-cutting at 7-Eleven in the US. Its profitability is well below that of the Japanese business, even allowing for low-margin gasoline sales.
CEO Ryuichi Isaka may struggle to win over investors given the course of the stock under his tenure. It’s hard to change leadership in the middle of a bid situation, but the board could at least tie management’s pay far more rigidly to rapid implementation of the strategy.
Maybe there’ll be no deal and history won’t happen. If the only reason is that Couche-Tard was unwilling to pay a full and fair price, good.
