(Bloomberg) — Seven & i Holdings Co. 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 Inc., people with knowledge of the matter said.
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The Japanese retailer has approached private equity funds and other entities about the sale of multiple businesses under its supermarket empire, said the people, who asked not to be identified because the discussions aren’t public. Based on a multiple of six to eight times earnings before interest, taxes, depreciation and amortization, the sale could fetch ¥320 billion to ¥430 billion ($2.2 billion to $2.9 billion), one of the people said.
The sale of assets, including part of Seven & i’s stake in Seven Bank Ltd., 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 people added. Seven & i would retain a minority stake as well.
In April, before Couche-Tard’s interest became public, Seven & i said it is 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.
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, people with knowledge of the matter said.
Seven & i’s supermarkets brought in ¥13.5 billion in operating profit during the fiscal year that ended in February, well below the ¥301.6 billion from overseas convenience stores and ¥250.5 billion from domestic convenience stores. The supermarkets business is worth about ¥232.4 billion 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% of Seven Bank, including shares held by other group companies, a stake worth about ¥153 billion. While the financial business that includes Seven Bank makes up 7.1% 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 LP has argued in the past that the Japanese retailer should be worth more than it does now — ¥5.62 trillion — without a conglomerate discount.
Seven & i Holdings Co., 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.
–With assistance from Hideki Suzuki.
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