7-Eleven’s parent company cuts its full-year earnings forecast

Japanese retail Seven & i Holdings cut its earnings forecast and pressed ahead with restructuring plans that include spinning off non-core businesses into a standalone subsidiary.

The company cut its profit forecast for the fiscal year ending February 2025 and now expects net income of 163 billion yen ($1.09 billion), a 44.4 percent cut from its previous forecast of 293 billion yen. The cut comes as it reported first-half net profit of 52.24 billion yen on revenue of 6.04 trillion yen. While sales were higher than estimates, profits are significantly below its own guidance of ¥111 billion.

Seven & told him it had seen fewer customers at its overseas stores as they took a “more cautious approach to consumption”. The company said it recorded a ¥45.88 billion charge related to the Ito-Yokado Online Supermarket spin-off.

In a separate filing, the owner of 7-Eleven said it would set up an intermediate holding company for its supermarket food business, specialty stores and other businesses, amid growing pressure from investors to pare down its portfolio.

reorganization, which would consolidate 31 units, comes as the Japanese retail group resists a takeover bid for the Canadian. Diet Couche-Tard.

In September, Seven & rejected its initial takeover offer of $14.86 per share, saying the offer was “not in the best interests” of shareholders and stakeholders, and also cited US antitrust concerns.

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

Seven & i confirmed on Wednesday that it had received a revised offer from ACT, but did not disclose further details. Bloomberg previously reported that Canadian convenience store operator Circle-K raised its offer by about 20 percent to $18.19 a share, which would value Seven and i at 7 trillion Japanese yen. If completed, the deal could become the largest-ever foreign takeover of a Japanese company.

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

“We’ve had a lot of problems with poison pills in Japan in recent years, and the legal structure is extremely opaque,” he added. Companies trying to shake off an acquirer may opt to implement a “poison pill” by issuing additional stock options to dilute the attempted acquirer’s stake.

However, “a hostile tender offer would be highly 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 gets to a “sufficiently attractive level,” he said it may be difficult for the board to keep rejecting it.

“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 try to “exploit those frustrations” and “effect a change in the board’s composition.” .

Seven & i shares traded at 2,325 Japanese yen at the close on Thursday. Tokyo-listed shares have risen more than 33 percent since interest in the Canadian company went public in August.

ACT has about 16,800 stores globally, far fewer than Seven & i Holdings’ roughly 85,800 stores.

The newly revised offer indicates that ACT’s leaders are “committed,” Jesper Koll, head of Japan at Monex Group, told CNBC via email. He also pointed out that the new offer price suggests a 53% premium to where the stock was trading before the original offer.

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

“I don’t see ACT revising its price,” Amir Anvarzadeh, a Japan equity market strategist at Asymmetric Advisors, told CNBC, “the pressure is on Seven & i management to prove they can speed things up and remain independent. .”