On October 10, Seven & i Holdings Co., Ltd. (Convenience store operations and others) (HD, hereafter), announced the establishment of York Holdings, an intermediate holding company aimed at optimizing the group structure. This new entity will integrate non-convenience store businesses (SST business group) such as Ito-Yokado (General merchandise and supermarket chain), YORK-BENIMARU (Supermarket chain), LOFT (Household goods specialty store), Akachan Honpo (Baby and maternity products retailer), and the restaurant business. HD has begun the process of selling a majority of its shares in York Holdings. The first round of bidding, which closed on November 28, saw participation from groups such as SUMITOMO CORPORATION, Japan Industrial Partners, Inc. (JIP), and U.S. investment funds. After a second round of bidding, York Holdings is expected to become an equity-method affiliate within FY2025.

The separation of the SST business group aligns with the direction proposed by HD’s Strategic Committee, composed of independent outside directors, in April. However, the timing suggests it is a defensive move against a takeover proposal from Canadian retail giant Alimentation Couche-Tard (ACT). The founding family is also taking action. On November 13, HD disclosed that it had received a proposal for a management buyout (MBO) from the family group. Domestic megabanks, U.S. investment funds, and Itochu Corporation, which owns FamilyMart, are reportedly interested in financing the MBO.

The acquisition proposal from ACT must have been a shock to HD. However, this is not the first time HD has faced external pressure. Last year, U.S. investment fund ValueAct Capital (VAC) demanded a restructuring of the conglomerate and a change in the board of directors. In response, HD defended its position, stating that the “Seven & i Group is a world-class retail group centered on food” and highlighting its efforts to strengthen its investment in the convenience store business while selling other assets like OSHMAN'S, Francfranc, Sogo & Seibu (Department store), and BARNEYS. HD also dismissed its shareholder proposals for board member changes, stating that VAC’s nominees lacked experience in the food and retail industries.

Nevertheless, the current situation mirrors VAC’s proposal to spin off the convenience store business, with the key difference being that all current directors, including President Ryuichi Isaka, remain in their positions. HD explains that the separation allows the SST business group to define its own growth strategy as an independent entity. However, this essentially highlights that HD’s current management has been unable to drive growth and synergy within the group. Japan’s convenience store market is now saturated, making overseas expansion the primary avenue for future growth. Therefore, strong global management capabilities are now a critical requirement for leadership. The Strategy Committee should evaluate the management structure from this perspective and propose a vision for the future of Seven-Eleven.

This Week’s Focus, December 8 - December 12, 2024

Takashi Mizukoshi, the President