Seven & I Approaching Buyers for Retail, Supermarkets Units

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(Bloomberg) — Seven & i Holdings Co. reached out to… With potential buyers for its Ito-Yokado department stores and supermarkets as it seeks to restructure in the face of a takeover approach from Canada’s Alimentation Couche-Tard Inc, people familiar with the matter said. .

The Japanese retailer has approached private equity funds and other entities about selling several companies within its department store empire, said the people, who asked to remain anonymous because the discussions are not public. Based on six to eight times earnings before interest, taxes, depreciation and amortization, the sale could fetch between 320 billion yen and 430 billion yen ($2.2 billion to $2.9 billion), one of the people said.

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The sale of assets, including part of Seven & i’s stake in Seven Bank Ltd., is part of a drive to show a greater focus on the retailer’s convenience store business. The owner of 7-Eleven is facing pressure to show it can get a higher valuation, both in negotiations and through its own efforts, after an initial approach by Couche-Tard was rejected as insufficient, given the value of the company.

A representative for Seven&i declined to comment.

The sources added that the discussions are still at an early stage and may be cancelled. Seven & i will retain a minority stake as well.

In April, before the Couche-Tard interest became public, Seven&i said it was considering listing Ito-Yokado, the company’s original retail operation. The approach taken with potential buyers of Ito-Yokado and its supermarkets suggests that the Japanese retailer is accelerating plans to restructure its business in order to enhance its value and narrow its focus on convenience stores.

Earlier this week, Bloomberg News reported that Seven Bank, which has become an important part of Japan’s retail business over the past two decades, would no longer be considered a subsidiary, people familiar with the matter said.

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Seven & i’s supermarkets generated 13.5 billion yen in operating profit during the fiscal year ended in February, far lower than the 301.6 billion yen from overseas stores and 250.5 billion yen from domestic stores. The supermarket business is worth about 232.4 billion yen as a standalone enterprise, JPMorgan analysts wrote in a report in August.

Aside from Ito-Yokado, Seven & i operates Shell Garden, an upscale supermarket mainly located around the Tokyo area. York-Benimaru supermarkets are active in northern Japan, while Tenmaya retail stores can be found around Okayama Prefecture on the main island of Honshu.

Seven & i controls approximately 46% of Seven Bank, including shares held by other group companies, a stake worth about 153 billion yen. While the finance business, which includes Seven Bank, makes up 7.1% of Seven & i’s operating profit, it brings in more money than the supermarket business.

The Japanese retailer plans to report its quarterly results on October 10, the first since the Couche-Tard proposal became public.

For many years, Seven & i has faced calls from investors to focus more on its convenience store business. ValueAct Capital Management LP has argued in the past that the Japanese retailer should be worth more than it is now — 5.62 trillion yen — without a discount on the group.

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Seven & i Holdings Co., a sprawling global retailer that spans banking, online ticketing, department stores and even Tower Records, a once-popular American record store that has gone bankrupt.

The Japanese retailer originated as a clothing store a century ago and has evolved into a general merchandiser, selling everything from groceries and sundries to clothing and household goods as Ito-Yokado. After bringing 7-Eleven stores and Denny’s restaurants to the country in 1974, the convenience store concept turned out to be transformative for the company, which later acquired the entire chain and embraced it as part of its name.

-With assistance from Hideki Suzuki.

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