(Bloomberg) -- Seven & i Holdings Co. is considering a management buyout to take itself private with funding from banks, Itochu Corp. and the founding Ito family in a transaction that could be worth around ¥9 trillion ($58 billion), people with knowledge of the matter said.
Any deal could be presented as an option for shareholders in the event that Alimentation Couche-Tard Inc. becomes more aggressive with its pursuit of Seven & i and makes a tender offer, the people said, asking not to be identified because the negotiations haven’t been made public. Seven & i confirmed the family’s non-binding proposal without giving specifics, including a price.
Seven & i shares surged as much as 17%, their biggest intraday gain since Aug. 19. Itochu’s stock fell as much as 3.4%.
Under the management buyout being discussed, which would be the largest-ever in Japan, trading house Itochu, the founding family and existing investors would contribute ¥3 trillion in cash and equity, the people said. Japan’s top megabanks — Sumitomo Mitsui Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. — would put up ¥6 trillion in financing, the people added.
Such an arrangement would be a remarkable unified response to Couche-Tard’s takeover approach, the biggest ever foreign attempt to buy a Japanese target. With the participation of Itochu — Seven & I’s top competitor in the domestic convenience store business — it would reflect the coordinated resistance of corporate Japan to foreign control of one of its most famous companies.
Talks are ongoing and the deal could be difficult given its size, the people said. There’s a chance that the management buyout may not proceed if Couche-Tard rescinds its proposal to buy Seven & i.
Representatives for Sumitomo Mitsui, Mitsubishi and Mizuho declined to comment on any specific transactions. A spokesperson for Itochu declined to comment, saying nothing has been decided.
The operator of 7-Eleven stores hasn’t said anything publicly since Couche-Tard increased its proposed price for Seven & i to $18.19 a share last month to value the Japanese retailer at ¥7.2 trillion. Seven & i had rebuffed an earlier, lower offer by the Canadian operator of Circle K stores and embarked on a restructuring aimed at unlocking value.
In a statement after Bloomberg reported the potential management buyout, Stephen Dacus — who leads a special board committee — said the group is examining the proposals from the Ito family and Couche-Tard, as well as the company’s own measures to maximize its standalone value.
“We are objectively considering all options for realizing potential shareholder value,” Dacus said in a statement, adding that the committee will continue to engage in dialogue with all relevant parties and seek to deliver on the “interests of the company’s shareholders and other stakeholders.”
Although Seven & i has laid out restructuring plans that will effectively split the company, the management buyout would initially seek to acquire the entire business, one of the people said. If a deal is reached, the new owners would eventually implement the plan to separate the business focused on 7-Eleven, convenience stores and gasoline stations from the other, which is made up of less profitable retail operations, the person said.
A deal would give Seven & i management significantly more breathing room.
“If it goes private, they can speed up reforms boldly without worrying about short-term perspectives or the share price,” said Naoki Fujiwara, a senior fund manager at Shinkin Asset Management Co. “The price is not bad, as it’s higher than the market value and the acquisition offer price. The management team probably wants to show that the company is worth that much.”
Itochu, one of Japan’s top trading companies, runs FamilyMart, a rival to 7-Eleven stores; any deal may seek to deliver synergies between the two convenience-store chains.
The heirs of Masatoshi Ito, who expanded a small family-owned shop into one of Japan’s largest retailers and turned 7-Eleven into a global enterprise, together own about 8.5% of Seven & i, according to data compiled by Bloomberg. His son Junro Ito, a vice president and board member, holds part of that stake and will recuse himself from any board deliberations involving the proposals from his family and Couche-Tard, Seven & i said in Wednesday’s statement.
The retailer traces its origins back to the Yokado Clothing Store, founded in Tokyo in 1920.
--With assistance from Koh Yoshida, Toshiro Hasegawa and Kana Nishizawa.
(Updates with shares in third paragraph.)
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