- The vice chairman of Seven & i Holdings, Junro Ito, made an offer last month to buy out the company his late father founded, in the largest management buyout (MBO) in history.
- Ito’s offer, which is a “knight on a white horse,” appears designed to distance Seven & i from Canadian firm Alimentation Couche-Tard, which announced its takeover proposal in August.
- The owner of Circle K in October raised its offer for Seven & i by about 22 percent, to $47 billion, after rejecting its initial proposal.
The race for 7-Eleven sets a new trend
The race for Seven & and gives an idea of how similar deals will develop in the coming years, industry experts say, pointing out that changes in corporate governance standards in Japan are making the buyout opportunity increasingly attractive, Reuters analyzes.
A few years ago, companies could still ignore unwanted bids because they were protected by so-called shareholder deals – the practice of holding shares in partner companies to strengthen relationships. But those shares are now being sold as part of a government initiative to improve corporate governance. Companies have also been encouraged to seriously consider credible buyout offers.
Read more
Zalando wants to take on the competition. It intends to acquire a well-known online store .
Managers can no longer ignore shareholders as they did in the past. Shares between shareholders are being sold off on an ongoing basis, said Travis Lundy of Quiddity Advisors, which publishes on the Smartkarma platform.
Management buyouts will become more and more common, Lundy added, noting that the government’s guidelines for considering buyout offers are a “game-changer.”
Management buyouts a new option for business owners?
Last year, the value of management buyout deals in Japan totaled $7.1 billion, the highest value in at least 36 years. This year, the value has fallen to $1.7 billion.
Most recent such deals include the acquisition of education company and nursing home operator Benesse Holdings by members of the founding Fukutake family and Swedish private equity fund EQT. Drug maker Taisho Pharmaceutical, on the other hand, was bought out by a member of the founding family, Uehara.
MBOs are becoming an attractive option because corporate governance reform has created greater burdens on public companies, while holding public company status no longer provides the advantage it once did, says Ulrike Schaede, a professor of Japanese business at the University of California, San Diego.
Schaede cites the example of Germany, where MBOs have become a “new defense” against shareholder activism, and says Japan may begin to see a similar trend, especially given the private equity sector’s appetite for deals there.
Japan is not the only place where founding families own shares and have influence after the founder’s death, and Seven & and is not the only global retailer in such a situation. The family of U.S. Walmart founder Sam Walton holds a 45.5 percent stake, while Swedish H&M’s largest shareholders are Stefan Persson, the founder’s son, and his family.
Read more
They are taking over more than 1,700 stores. They have the green light
Backseat control
Japan, however, is distinguished by the fact that families are able to wield considerable power despite holding small stakes. Ito-Kogyo, the company associated with Junro Ito that is trying to take over Seven & i, holds only about 8.2 percent of the company.
Historically, family control of companies in Japan has been “more durable than the very low equity ownership of the founding families would indicate,” wrote researchers from the University of Copenhagen, the University of Alberta and other universities in a 2021 paper published in the Journal of Financial Economics.
About 10-30% of companies listed on Japanese stock exchanges from the 1960s to 2010 were managed by heirs of founding families who had “little ownership to report,” Morten Bennedsen, Vikas Mehrotra and co-authors found. They pointed to the example of the Toyoda family at Toyota Motor Corp, the Suzuki family at Suzuki Motor Corp and the Kashio family at Casio Computer. These clans have been able to maintain control through so-called “soft family resources,” including name and reputation.
We expect this trend to continue, with no signs that it is changing, Bennedsen told Reuters.
One of Seven & i’s investors mentioned a meeting with company executives, including Junro Ito, who remained silent throughout the meeting. The extent to which the Ito family exercised power in the company was “something of a secret,” said the investor, who asked to remain anonymous due to company policy.
A spokesman for Seven & and declined to comment.
It remains an open question whether the Ito family will be able to raise the funds needed to complete the deal – although domestic banks appear to be willing to cooperate with them.
If the founding families in Japan really want to control and influence their companies, they should not be listed on the stock market, said one Seven & i investor.
7-Eleven is a convenience store chain that has operated in the United States since 1927. A majority stake (70 percent) in the company was acquired in 1991 by Ito-Yokado, a Japanese supermarket chain and parent company of Seven-Eleven Japan. Since 2005. 7-Eleven is a wholly owned subsidiary of Seven-Eleven Japan, part of Seven & I Holdings Co. established the same year. As the chain’s website reads, 7-Eleven currently operates and licenses some 80,000 stores in 19 countries and territories under the brand of the same name.
