Japan’s Seven & i Seeks Preemptive Measures Amid Foreign Takeover Interest

Seven & i Holdings, the operator of 7-Eleven convenience stores, is reportedly seeking enhanced government protection in Japan, just days after revealing that it had received a preliminary takeover offer from Canada’s Alimentation Couche-Tard. This move by the $38 billion company raises concerns as it appears to contradict the Japanese government’s efforts to rejuvenate the economy by encouraging corporate reforms and attracting foreign investment.

According to Bloomberg, Seven & i is requesting a status upgrade that would require any entity acquiring more than 10% of its shares to notify the government in advance. This measure, often seen as a deterrent against hostile takeovers, could significantly impact the fairness of the acquisition process, especially as the company has been underperforming and is in need of restructuring.

Japan’s most-protected status is typically reserved for companies with strategic importance, such as Toyota, SoftBank, and major chipmakers like Tokyo Electron and Renesas Electronics. These companies are required to provide extensive disclosures, although the status doesn’t outright block foreign takeovers. For instance, Fuji Soft, which holds this status, is currently the subject of a tender offer by U.S. private equity firm KKR.

Granting such protection to a retail company like Seven & i, particularly after an external party has already expressed interest, could undermine the government’s broader goal of promoting shareholder value and economic growth. Tokyo’s foreign investment framework is designed to provide transparency and predictability for potential investors, and premature intervention could dissuade other bidders and weaken the market’s confidence.

As Japanese firms begin to reduce their reliance on traditional M&A defenses, the government’s best course of action might be to allow the market process to unfold naturally. Companies like Mitsui, which owns a 2% stake in Seven & i, have been diversifying into food businesses, while others like Itochu and KDDI have made significant acquisitions in the convenience store sector. The interest from Couche-Tard, which has already boosted Seven & i’s shares by 18%, could attract further attention from foreign private equity firms.

In summary, the Japanese government would be wise to refrain from acting on Seven & i’s request for enhanced protection, ensuring a transparent and fair process for all parties involved.

The company, which operates the 7-Eleven stores in Japan, seeks to upgrade its status under the Foreign Exchange and Foreign Trade Act from “non-core” to “core.” Following this news, the company’s shares dropped by 2% on August 28, still reflecting an 18% increase since August 16, when it confirmed receiving a preliminary takeover bid from Alimentation Couche-Tard.