Fortress to buy Sogo & Seibu from Japan's Seven & i
Seven & i Holdings, a Japanese retail conglomerate best known as the parent company of 7-Eleven, has agreed to sell department store operator Sogo & Seibu to Fortress Investment Group.
The sale comes in the wake of pressure from activist investor ValueAct Capital, which built up a 4.4% position in Seven & i in 2020 and began pushing for change. It claims that 7-Eleven could achieve a valuation more than twice that of Seven & i if the business were spun out or if the parent restructured its holdings to focus on convenience stores.
ValueAct Capital is regarded as a more progressive type of activist investor that looks to collaborate with management teams instead of engaging in proxy battles. However, it expressed frustration earlier this year at Seven & i’s failure to “pursue bold, structural reform, and pursue it with urgency.”
In a public letter issued to the board in January, ValueAct said that Seven & i is strategically unfocused and vastly underperforming its potential. It proposed that external directors seek direct shareholder input on issues relating to strategy and management oversight and that the board create a strategic review committee, comprising external directors, to consider asset sales and spin-offs.
Several weeks later, ValueAct put forward a four-step transformation plan for Seven & i. These steps included selling Sogo & Seibu, selling or spinning off ItoYokado, and exiting other non-core businesses so as to focus on food retail.
Seven & i initiated a sale process, which reportedly drew interest from multiple private markets investors. It said in a statement that Fortress, as a significant investor in real estate with experience in turnaround situations, was best positioned to make the Sogo & Seibu more profitable and to drive the growth and efficiency of [the company] by maximising the value of its real estate assets.”
Sogo & Seibu has approximately 4,500 staff across 10 stores. Revenue reached JPY 456.8bn (USD 3.3bn) for the 12 months ended March 2021, up from JPY 440.5bn a year earlier. Over the same period, its net loss narrowed from JPY 17.2bn to JPY 8.8bn.
Seven & i’s sales for the 12 months ended March 2022 were JPY 14.2trn and operating profit was JPY 387.6bn. 7-Eleven was responsible for most of the operating profit – according to ValueAct, this segment accounts for 97% of operating profit and over 100% of corporate value creation – while Sogo & Seibu contributed a loss of JPY 3.5bn.
This is Seven & i’s second announced divestment to private equity in the past 18 months. In July 2021, the company said it would sell a majority stake in furniture and home décor business Francfranc to Japan Growth Investments Alliance (J-GIA).
Other recent Japan acquisitions by Fortress include golf course operator Accordia Golf, which was acquired from MBK Partners in late 2021.
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