7-Eleven parent company cuts full-year profit forecast

Japanese convenience retailer Seven and Me Holdings has reduced its profit forecasts and continued its restructuring plans which include spinning off its non-core operations into a standalone subsidiary.

The company reduced its profit forecast for the fiscal year ending February 2025 and now expects net profit of 163 billion yen ($1.09 billion), a 44.4% reduction from its previous forecast of 293 billion yen. This reduction comes as the group announced a net profit of 52.24 billion yen in the first half of the year on a turnover of 6.04 trillion yen. While sales were higher than expected, profits were significantly lower than its own forecast of 111 billion yen.

Seven&ia said it had seen fewer customers in its overseas convenience stores as it had adopted a “more cautious approach to consumption”. The company said it recorded a charge of 45.88 billion yen related to its spinoff from online supermarket Ito-Yokado.

In a separate folderThe owner of 7-Eleven said it would create a midstream holding company for its food supermarket operations, specialty stores and other businesses, amid growing pressure from investors to shrink its portfolio.

Restructuring, which would bring together 31 units, comes as the Japanese distribution group resists a takeover attempt by the Canadian Alimentation Couche-Tard.

In September, Seven & I rejected the initial buyout offer of $14.86 per share, saying the offer was “not in the best interests” of its shareholders and stakeholders and also citing U.S. antitrust concerns.

After receiving this proposal, Seven & i sought and obtained a new “core business” designation in Japan. Under Japan’s Foreign Exchange and Foreign Trade Law, foreign entities must notify the government and undergo a national security review if they purchase a stake of 1% or more in a designated company.

Seven and I confirmed on Wednesday that he had received a revised ACT offerbut did not disclose further details. Bloomberg previously reported that the Canadian operator of Circle-K stores had increased its offer by about 20% to $18.19 per share, which would value Seven and i at 7 trillion Japanese yen. If finalized, the deal could become the largest ever foreign acquisition of a Japanese company.

It’s “entirely possible” that ACT’s takeover offer could turn into a hostile takeover attempt, Nicholas Smith, Japan strategist at CLSA, told CNBC’s “Squawk Box Asia” on Thursday. A hostile takeover occurs when an acquiring company attempts to take control of the target company against the wishes of its management and board of directors.

“We have had a lot of problems with poison pills in Japan in recent years, and the legal structure is extremely opaque,” ​​he added. Companies attempting to rid themselves of an acquirer may choose to deploy a “poison pill” by issuing additional stock options to dilute the attempted acquirer’s stake.

However, “an openly hostile takeover bid would be very unlikely”, according to Jamie Halse, founder and managing director of Senjin Capital, as no bank would be willing to provide the financing.

That said, if the offer reaches a “sufficiently attractive level”, it could be difficult for the board to continue rejecting it, he added.

“Shareholders are likely already frustrated that no further negotiations have taken place despite the increase in the offer price,” he said, adding that an activist investor could seek to “exploit these frustrations.” and “make a change in the composition of the board of directors”.

Seven & i shares were trading at 2,325 Japanese yen as of Thursday’s close. Shares listed in Tokyo have jumped more than 33% since the Canadian company’s takeover. became public in August.

ACT has approximately 16,800 stores worldwidemuch less than that of Seven & i Holdings approximately 85,800 stores.

The newly revised offer indicates that ACT leadership is “committed,” Jesper Koll, head of Japan at Monex Group, told CNBC via email. He also pointed out that the new offering price suggests a 53% premium to the stock price before the initial offering.

“The money they’re offering is good, but there’s more to it than just numbers,” Koll said.

“I really don’t see ACT revising its price upwards,” Amir Anvarzadeh, Japan stock market strategist at Ametric Advisors, told CNBC. “The pressure is on Seven&i’s management to prove that it can accelerate the things and remain independent.