7-Eleven Owner Drops Go-It-Alone Strategy for SoftBank Embrace

Seven & i Holdings Co.’s move toward selling a stake to SoftBank Corp. and PayPay Corp. signals a willingness to surrender some control over its future in return for the benefits of being allied with key strategic partners.

(Bloomberg) — Seven & i Holdings Co.’s move toward selling a stake to SoftBank Corp. and PayPay Corp. signals a willingness to surrender some control over its future in return for the benefits of being allied with key strategic partners. The Tokyo-based retailer is mulling a new share issuance totaling several hundred billion yen to SoftBank and PayPay, which is Japan’s dominant payments operator, Bloomberg reported last week, citing people familiar with the matter.

The move would allow all three companies to capture more of consumers’ wallets, and help Seven & i to spur faster profit growth at its convenience stores. But it would mark an end to Seven & i’s long-held policy of staying fiercely independent by eschewing capital tie-ups and maximizing tactical flexibility. While the company has entered into several business partnerships, it’s avoided selling equity stakes in itself to retain a free hand in a fast-evolving business.

That go-it-alone approach has prevented it from enjoying greater economies of scale in areas like payment infrastructure and artificial intelligence. It also runs counter to industry trends. Chief rival FamilyMart became a wholly owned unit of major trading house Itochu Corp. in 2020 and four years later another blue chip trading house, Mitsubishi Corp., joined forces with telecom giant KDDI Corp. to buy out Lawson Inc.

Seven & i has had an extended business relationship with Mitsui & Co., but the top trading house owns less than 2% of its shares. Those ties may grow closer if the credit card arm of Sumitomo Mitsui Financial Group Inc., a historically Mitsui-affiliated bank, follows through on a possible plan to take an equity stake in Seven & i in conjunction with SoftBank and PayPay, said the people familiar with the planned transaction, who asked not to be identified because the negotiations aren’t public. SoftBank, PayPay and Sumitomo Mitsui are in negotiations and aim to sign a deal this summer, the people said.

The discussions are in flux, and there is a chance that a final agreement won’t be reached. Representatives for SoftBank, which owns a majority stake in PayPay, and Sumitomo Mitsui’s card unit declined to comment. Seven & i didn’t immediately comment.

Shares of PayPay, which trade on the Nasdaq Global Select Market, fell 0.8% to $15.50 in New York on Friday. American depositary receipts of Seven & i rose 2.3% to $13.50. Deep-Pocketed Protection PayPay rewards and SoftBank’s mobile-customer base could help drive traffic to Seven & i’s stores, Lea El-Hage, a Bloomberg Intelligence industry analyst, wrote in a July 10 research note.

And the retailer could leverage its new equity partners’ technology to implement greater automation, AI-driven logistics and efficiency initiatives. However, the expected new offering would dilute core performance metrics like earnings per share and return on equity. “Issuing stock would put the burden of proof on management to show that traffic, monetization and productivity gains outweigh EPS and ROE dilution,” she wrote.

Perhaps the biggest, though intangible, gain for Seven & i is the presence of deep-pocketed partners to help fend off activist shareholders or unwanted suitors. The company rebuffed an unsolicited takeover attempt two years ago by Canada’s Alimentation Couche-Tard Inc., which operates the Circle K convenience store chain, in part with radical ideas like a management buyout led by the founding Ito family that would involve rivals Itochu. While both the Couche-Tard and Ito family approaches ultimately failed, investor frustration with Seven & i’s valuation lingers.

The retailer’s shares have gained 19% over the past five years, but the benchmark Japanese retail index has surged 65% and the Topix index of all stocks listed on the first section of the Tokyo Stock Exchange has more than doubled. Chief Executive Officer Steve Dacus has been working to turn around the Tokyo-based retailer through a restructuring that’s included selling off an under-performing retail business and cutting its holdings in a banking unit. It also plans to list its US operations.

One way to increase traffic at Seven & i stores is by incentivizing consumers to visit and spend more by tapping into SoftBank and PayPay’s existing incentive systems, helping to stay competitive with other convenience store chains. FamilyMart, for example, announced plans in May to join internet retailer Rakuten Ichiba’s popular point card program, becoming the first company outside the Rakuten Group to offer those points. Customers that spend more than 3,000 yen a month at the convenience store will be eligible for an additional 0.5 times the normal point awards at Rakuten Ichiba.

“Deepening the partnership between Rakuten—a powerful platform operator—and FamilyMart, which possesses physical customer touch points, is a significant undertaking that enhances the value of both companies,” Tatsuo Odani, FamilyMart’s president, said at a press conference in May. Similarly, users of KDDI and Mitsubishi’s cell phone-based Ponta loyalty point system are offered weekly coupons and enhanced point redemption for purchases at Lawson stores. Lawson also has been on the frontlines of adopting AI tools, such as a store in Tokyo’s upscale Takanawa district that last year began deploying cameras and monitors that recommend products to indecisive buyers.

It also features private booths with AI-powered avatars that can help customers with tasks such as signing up for smartphone contracts, financial services and health consultations. Seven & i operates its own payments and loyalty program, which could potentially be combined with PayPay’s 74 million users. And SoftBank has AI tools under development that can automate store operations.

Founder Masayoshi Son is seeking to expand the company’s role in the deployment of AI services and infrastructure around the world.