(Bloomberg) — Seven & i Holdings Co. will sell an underperforming retail business, replace its chief executive and buy back shares to strengthen its case for repelling a $47.5 billion takeover proposal by Alimentation Couche-Tard Inc.
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Stephen Dacus, the director leading the board committee evaluating the Canadian retailer’s approach, will take over from Ryuichi Isaka as CEO, Seven & i said in a statement Thursday. The company, which pledged to buy back shares worth ¥2 trillion ($13.6 billion) over the next few years, also plans to list its US business and cut its holdings in a banking unit.
The fusillade of restructuring measures follows years of investors pushing the sprawling Japanese retailer to unlock value and focus more on convenience stores, its most profitable and successful business. Years of inaction led to an undervalued share price, attracting activist investors as well as Couche-Tard, which proposed to buy the company last year.
With an attempted management buyout no longer an option, the question is whether Seven & i’s bold new measures will be enough to convince shareholders that it can go it alone.
“The share buyback move is an attempt to try to lift market value to help fend off the bid,” said Lorraine Tan, an analyst at Morningstar Asia Ltd. “We view the appointment of Stephen Dacus to be generally positive.”
Although a Bloomberg report of the share buyback lifted Seven & i’s shares by 6.1% before Thursday’s announcement, the company’s valuation of ¥5.5 trillion remains stuck below Couche-Tard’s proposal by roughly 22%.
Still Committed
The Canadian owner of Circle K stores said last week that it remains committed to negotiating a deal with Seven & i, although it has yet to gain access to the company’s books in order to make a firmer offer.
Seven & i struck a deal to sell its superstore business for $5.37 billion to a unit of Bain Capital, which said it will take the business public within three years, while Seven & i indicated that it plans to reinvest in the unit.
Separately, the Japanese retailer will pursue an initial public offering of its 7-Eleven convenience stores business in the US in the second half of 2026, and also divest Seven Bank Ltd., deconsolidating the unit.
All of this will make cash available to fund the stock repurchase plan, which will be conducted over the next five years.
The North American unit has “huge intrinsic value but as it stands right now, it’s undervalued because it’s not public,” Dacus said in an interview late Thursday. “We are far and away the leader in the US, we’re way bigger than our competition. The best way to unlock the value for the business’s growth and for shareholders return is to do the IPO.”
It has more than 13,000 stores in the US and Canada, according to its website.
Seven & i has consistently rebuffed the approach by Couch-Tard, even after the Canadian retailer raised its proposed price, saying there’s too much uncertainty around the “serious US antitrust challenges” that would result from a combination of their stores and gasoline stations in North America.
The company this week said it’s still “constructively engaging” with Couche-Tard on its buyout proposal. Dacus said he speaks to Couche-Tard “all the time,” adding the most recent conversation was just four or five hours before the interview with Bloomberg.
Seven & i had been considering a management buyout proposal by the founding Ito family and Itochu Corp. to take it private for as much as ¥9 trillion, but the plan collapsed last week because the consortium wasn’t able to secure enough financing.
Isaka, who managed to fend off an earlier attempt by ValueAct Capital Management LP to remove him as CEO, hands over the fate of the Seven & i to Dacus, 64, who has worked for decades in the retail industry and is a fluent Japanese speaker.
Dacus will be the first non-Japanese CEO of the company and comes with years of experience advising Japanese companies abroad. His retail career started at Mars Inc. in 1996, where he rose in the ranks to become CEO of its condiment unit in 2001. Dacus later became a senior vice president at Japanese apparel giant Fast Retailing Co. in 2005 and the head of Walmart Inc.’s Japan unit in 2011.
“Seven & I has lost its momentum recently. We have to humbly accept this. We have put this back on track,” Dacus said at a news conference, adding that his father was a 7-Eleven owner in California and worked night shifts on Fridays and Saturdays when he was young. “We can’t forget the importance of shareholder return. This is going to change going forward.”
How Dacus navigates the restructuring and any discussions with Seven & i will determine the fate of an iconic Japanese company, which took an American invention — convenience stores — and turned it into a robust international business with almost 35,000 stores.
Long History
The retailer traces its origins back to the Yokado Clothing Store, founded in Tokyo in 1920, and built up the Ito-Yokado chain in the postwar economic boom as a one-stop shopping center. That business later became a drag on the company’s performance and forms the core of the unit being sold to Bain Capital.
New corporate guidelines aimed at injecting more vigor into corporate Japan through improved governance and protections for investors have, ostensibly, created a more conducive environment for takeovers in a country that has long been resistant to large cross-border deals.
Seven & i’s efforts to bolster its value in response to an unsolicited takeover approach shows, to a certain extent, that the new guidelines are working. But the protectionist tendencies of the government and corporate boards prioritizing stability over shareholder value also create high hurdles for would-be buyers such as Couche-Tard.
“We are seeing a light of the tunnel on restructuring the domestic business,” Isaka said at the news conference. “Now, I’d like Stephen to take it over and with his leadership and boost the valuation of the company.”
–With assistance from Aya Wagatsuma, Karthikeyan Sundaram and Stuart Biggs.
(Updates with incoming CEO’s interview comments in 11th, 14th paragraphs.)
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