In August 2024, Alimentation Couche-Tard (ACT), the Canadian convenience store operator best known for Couche-Tard and Circle K, launched a $39.9 billion attempted hostile takeover of Seven & i Holdings, a Japanese global retail conglomerate. The takeover, unconsummated to date, has been a tale of target resistance, boardroom maneuvers, and political hurdles. At issue is not only the future of one of Japan’s most recognizable retail giants, but also the extent to which Japanese economic nationalism will thwart majority foreign ownership of Japanese firms.
Seven & i runs convenience, super, and specialty stores and offers financial services. Its flagship brand, 7-Eleven, traces its roots to a company created in Texas in 1927. Ito-Yokado opened the first Japanese 7-Eleven in 1974 through a licensing agreement and took a controlling stake in 7-Eleven’s owner, Southland Corporation, in 1991. In 2005, Seven & i became the holding company of Ito-Yokado and 7-Eleven Japan. Today, it operates over 83,000 stores worldwide.
Seven & i became vulnerable because recent operating income and earnings per share results, despite increasing sales, store numbers, and acquisitions, have disappointed shareholders. The company has very attractive assets in regions like Southeast Asia while its Japanese operations are highly profitable. As for North America, it has been generating an increasing share of the conglomerate’s operating profit, though trends since 2022 have been unimpressive or poor. Regarding Southeast Asia, Seven & i stores in countries like Thailand have been expanding and propelling increases in profits. Nevertheless, some shareholders lack confidence in management.
ACT operates 16,700 stores in 31 countries, including 7,100 Circle K and Holiday Station stores in the U.S., and has a strong presence in Canada, Europe, and Southeast Asia. It hopes to expand its global footprint and Seven & i fits the bill. Moreover, aside from the appealing traits noted above, Seven & i, like many other Japanese companies, has been trading below the valuation of comparable global retailers, opening a “buying opportunity” that ACT moved to exploit by launching an unsolicited offer. This deal, if finalized, would represent the largest-ever foreign takeover of a Japanese company. As a result, issues were destined to arise. Nonetheless, the situation initially seemed promising for ACT, which had strong backing from large shareholders like the Caisse de dépôt et placement du Québec. It also had financing in place from Goldman Sachs and banks like the Royal Bank of Canada.
Seven & i reacted negatively to ACT’s offer. It rejected the initial buyout proposal twice, and then rejected a later offer in October that was $8 billion higher than the initial one. Seven & i contended that the offer undervalued its business and growth strategy. Regulatory issues also spurred concerns, with Seven & i retorting that ACT would have to sell an “unprecedented number of outlets” to satisfy regulators. Some Japanese business analysts contend the acquisition will be potentially harmful to the long-term growth of Seven & i. Others fret that a shift in priorities could potentially reduce new investments in Seven & i’s Japanese operations, leading to less innovation and reduced consumer satisfaction.
To block the takeover, Seven & i initially explored a management buyout, but it collapsed when the necessary financing could not be secured. Subsequently, it announced a restructuring plan entailing the sale of supermarket and retail operations and a spinoff of its bank. Additionally, it launched a share buyback and dividend increase plan to boost shareholder value. More recently, the company appointed a foreigner, Stephen Hayes Dacus, who had been board chairman, as its new CEO. He was tasked with overseeing a restructuring, fending off the takeover bid, and restoring investor confidence. Most shareholders back Seven & i, though there are some noteworthy ones expressing disappointment with the conglomerate’s stance and plans.
Turning to politics, Tokyo appears supportive of Seven & i’s rejection of ACT. For example, it endorsed Seven & i’s August 2024 request to change the firm’s legal classification from a “non-core” to a “core” company, which means that foreign entities must notify the government before acquiring greater than 10 percent stakes. Japan’s Minister of Economic Revitalization Ryosei Akazawa endorsed the move, asserting that a foreign acquisition of Seven & i is “heavily related” to national security because convenience store supply chains are critical for disaster response and public welfare.
The government’s stance would not surprise some. After all, Tokyo has long been cautious about allowing foreign investors to control Japanese companies, strategic or not. For some, its response to ACT is emblematic of Japan’s inclination to favor domestic control and economic sovereignty over openness to foreign direct investment. Historically, Keiretsu, networks of interlinked businesses, among corporations, banks, and suppliers, have been used to shield domestic industries from foreign takeovers.
Should Seven & i emerge victorious, such resistance to foreign investors would be far from unprecedented. In 2006, American firm Cerberus Capital sought control of Seibu Holdings, a sprawling conglomerate, but ran into a solid wall of resistance. Proposals like closing rail lines and selling the Seibu Lions baseball team were seen as prioritizing profit over community, with Cerberus labeled a corporate “vulture” and eventually retreating.
Another case meriting attention was the state-backed bailout of Japan Airlines (JAL) in 2010. American Airlines and Delta Air Lines made offers, but Japan asked JAL to refrain from accepting them. Instead, JAL opted to accept a $6.6 billion government bailout that featured massive job and pension cuts, the elimination of a large number of routes, and shares becoming worthless. Large takeovers, even if quite rare, do happen, though, as evidenced by Foxconn’s successful acquisition of Sharp Corp. in 2016. While certainly not the same as takeovers, it should be noted that activist foreign investors repeatedly have spurred Japanese firms to implement buybacks, sell off underperforming units, and revamp their boards and management.
Some Japanese leaders have been trying to put their country on the globalization train. For instance, in 2015, the late Prime Minister Abe Shinzo introduced governance codes to make companies more attractive to investors by promoting transparency, encouraging shareholder activism, and reconsidering traditional practices such as cross-shareholding. In 2023, the Ministry of Economy, Trade, and Industry introduced guidelines to encourage companies to consider unsolicited takeover offers as opportunities for value creation. On the other hand, about five years ago, Tokyo tightened foreign ownership for 518 key firms, requiring pre-screening for foreign stakes of 1 percent or more in critical industries like defense and telecommunications. Of course, this was not just about economic nationalism, but national security and U.S. pressure, too.
The temptation, as far as Japan and (unsolicited) foreign takeover bids are concerned, is to conclude that nothing has changed. Reality may be more complex. In a recent interview, the head of the Japan Investment Corporation Keisuke Yokoo warned Japan might suffer reputational damage if it blocked the ACT takeover on economic security grounds because it would signal Japan was closed off to foreign capital. Separately, a senior Japanese Finance Ministry official emphasized that a “core designation” does not change the review process which remains driven by an assessment of national security risks, without being influenced by other factors like economic protectionism.
It is unclear what the ultimate outcome of the ACT-Seven & i saga will be. Whatever happens, Japanese corporate culture appears to present a continuing barrier for foreign investors. In contrast, Tokyo is slowly adapting to the demands of global markets, provided “core” assets are not at stake. Future takeover wars may well be battles over definitions.
