SEVEN & i Holdings has approached potential buyers for its Ito-Yokado stores and supermarkets as it seeks to restructure in the face of a takeover approach from Canada’s Alimentation Couche-Tard, sources with knowledge of the matter said.
The Japanese retailer has approached private equity funds and other entities about the sale of multiple businesses under its supermarket empire, said the sources, who asked not to be identified because the discussions are not public. Based on a multiple of six to eight times earnings before interest, taxes, depreciation and amortisation, the sale could fetch 320 billion yen (S$2.8 billion) to 430 billion yen, one of the sources said.
The sale of assets, including part of Seven & i’s stake in Seven Bank, is part of a push to show a greater focus on the retailer’s convenience-store business. The owner of 7-Eleven is facing pressure to show that it can command a higher valuation, whether in negotiations or through its own efforts, after rejecting a preliminary approach by Couche-Tard as insufficient, given the company’s worth.
A representative for Seven & i declined to comment.
Discussions are still at an early stage and may be called off, the sources added. Seven & i would retain a minority stake as well.
In April, before Couche-Tard’s interest became public, Seven & i said it was considering a listing of Ito-Yokado, the company’s original retail operation. The approach to potential buyers for Ito-Yokado and supermarkets suggests that the Japanese retailer is accelerating plans to restructure its business in order to boost its value and narrow its focus on convenience stores.
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Earlier this week, Bloomberg News reported that Seven Bank, which has become an important part of the retailer’s business in Japan over the past two decades, would no longer be accounted for as a subsidiary, sources with knowledge of the matter said.
Seven & i’s supermarkets brought in 13.5 billion yen in operating profit during the fiscal year that ended in February, well below the 301.6 billion yen from overseas convenience stores and 250.5 billion yen from domestic convenience stores. The supermarkets business is worth about 232.4 billion yen as a standalone enterprise, JP Morgan analysts wrote in a report in August.
Apart from Ito-Yokado, Seven & i operates Shell Garden, a high-end supermarket located mainly around the Tokyo area. York-Benimaru supermarkets are active in northern Japan, while the retailer’s Tenmaya stores can be found around Okayama prefecture on the main island of Honshu.
Seven & i controls roughly 46 per cent of Seven Bank, including shares held by other group companies, a stake worth about 153 billion yen. While the financial business that includes Seven Bank makes up 7.1 per cent of Seven & i’s operating profit, it brings in more cash than the superstore business.
The Japanese retailer plans to report quarterly results Oct 10, the first since Couche-Tard’s proposal became public.
For years, Seven & i has faced calls from investors to focus more on its convenience-store business. ValueAct Capital Management has argued in the past that the Japanese retailer should be worth more than it does now – 5.62 trillion yen – without a conglomerate discount.
Seven & i Holdings, is a sprawling global retailer that includes banking, online ticketing, superstores and even Tower Records, a once-popular US record store that went bankrupt.
The Japanese retailer originated as a clothing store a century ago and evolved into a general merchandiser, selling everything from groceries and sundries, to clothing and home goods as Ito-Yokado. After bringing 7-Eleven shops and Denny’s restaurants to the country in 1974, the convenience store concept turned out to be transformational for the company, which later took over the entire chain and embraced it as part of its name. BLOOMBERG
