7-Eleven’s time-wasting isn’t so convenient

The long-standing slogan of 7-Eleven in Japan for many years was chikakute benri, meaning "close and convenient.” It neatly sums up the chain’s value proposition: Sure, you pay a bit more to shop there, but the convenience more than makes up for it.

These days, though, it feels like a lot of time is being wasted at Seven & I Holdings, the parent company that’s the target of a takeover proposal from Canada’s Alimentation Couche-Tard.

Months of attempting to bring together a coalition of unlikely partners to keep the firm in Japanese hands through a management buyout — which involved the founding family, local banks, private equity and, most unusually, Itochu, the owner of rival chain FamilyMart — have come to nothing.

And now, in what looks to be the next phase to stave off the takeover, Seven & I Chief Executive Officer Ryuichi Isaka is being replaced with an outside director, the American Stephen Dacus, as reported by the Nikkei. The move seems designed to put a fresh face on the firm’s global expansion as it seeks to be rid of unprofitable domestic supermarket chains and other businesses that have contributed to its conglomerate discount.

It’s possible that a new public look is just what the company needs. Since first beginning to attract activist investors a decade ago, Seven & I has struggled in communication with the market. That the share price remains so low reflects skepticism that it can turn surging revenue, juiced by overseas expansion, into sustained higher profits.

But retail is a fast-moving industry — and all these months spent playing defense against Couche-Tard’s advances is time that management isn’t spending on addressing strategic opportunities and threats.

Isaka became CEO due to support from Third Point’s Daniel Loeb, who intervened in an attempted boardroom coup to remove Isaka in 2016. Loeb was encouraged by how Isaka built 7-Eleven’s Japanese convenience-store business in the face of increasing competition. It’s concerning that the takeover bid has now seemingly forced the firm to remove the man who helped develop its best-in-class sector, just when it needs his expertise.

Seven & I has been considering increasingly esoteric ways to avoid tackling the Canadian deal. In addition to the proposed management buyout, reports surfaced last year that it had also briefly considered the option of the "Pacman Defense” — turning the tables on Couche-Tard by acquiring it instead. The company ultimately concluded that it would be too difficult — ironically enough, partly due to the difficulty of working through Canadian takeover rules for foreign investors.

Since day one of the bid, the focus in the business press has been on the watershed nature of the prospective deal and what it would mean for Japanese M&A going forward. M&A lawyers are salivating at the prospect of a country full of under-appreciated assets that could now be on the table for foreign bidders.

But there has been too little attention paid to what the deal itself offers. Perhaps that’s because it seems as thin as the filling in a conbini sandwich. I am skeptical of the idea that Couche-Tard can bring the magic of Japan’s convenience food to U.S. stores, if Seven & I itself cannot (the physical challenges posed by geography would seem to the dealbreaker).

What seems most likely is an expensive merger that will saddle the new company with debt — and that’s assuming that, after months of negotiations, the merger isn’t struck down by antitrust authorities in Japan or the U.S., or even both.

And for what? While Couche-Tard has enviable margins, what evidence is there that it can run a better business — for stakeholders that include customers, suppliers and franchise owners — than the Japanese firm can? Seven & I’s transformation into a convenience store-centric business, something investors started demanding nearly a decade ago, is still in its infancy. Management should be given more time to see it to its logical conclusion. Beyond a temporary bump for shareholders, the merits of this deal don’t stack up.

All this is precious time spent on activities that will add nothing to the business, in an era of rapid change. Couche-Tard has already rejected the idea of a hostile takeover. So, instead of working on various Plans B behind the scene, Seven & I should politely, but firmly, tell Couche-Tard to take its business elsewhere. After all, that’s the beauty of the convenience store — there’s always another option around the corner.