Hedge fund ValueAct Capital urged Seven & i Holdings shareholders on Thursday to back a spin-off of the company's 7-Eleven convenience store chain, arguing the move would improve the conglomerate's valuation and corporate governance.
The U.S.-based investment firm, which owns a 4.4% stake in the Japanese company and has been urging it to make changes for at least a year, called on shareholders, in a letter reviewed by Reuters, to express their opinions on the matter to Seven & i's board.
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ValueAct argued that a tax-free spin-off of 7-Eleven could be completed through a listing on the Tokyo Stock Exchange in roughly a year.
The fund, which is led by Mason Morfit and has spent decades working with companies behind the scenes, is arguing that a spin off of 7-Eleven would deliver considerable benefits to shareholders.
"ValueAct estimates that over 10 years the 100% spin-off of 7-Eleven capital restructuring would result in shareholder value that is 80% higher than maintaining the current conglomerate structure," the letter said.
ValueAct added that its assumptions are conservative because they do not factor in benefits such as efficiency improvements at 7-Eleven's U.S. operations.
"We understand that Seven & i can combine 7-Eleven, Inc. and Seven-Eleven Japan and execute a tax-free spin-off to launch a global champion 7-Eleven listed on the Tokyo Stock Exchange about 12 months from now," the letter said.
Seven & i is currently conducting a strategic review and has pledged to announce its decisions by early March. Among the other options under consideration are a sale of Seven & i itself, a sale or spin-off of its superstore business, or maintaining the status quo.
ValueAct said in its letter it was not happy with the pace of change at the company after six new directors joined the company's board over the past year. "The debate at the board of Directors about the strategic review appears to be unresolved after four months of deliberation," the letter said, adding this could signal split opinions on the board or between executives.
The fund suggested shareholders might be able to broker an impasse by making their views known.