The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add graphic.
By Anshuman Daga
SINGAPORE, April 23 (Reuters Breakingviews) - ValueAct Capital can breathe a sigh of relief. The U.S. investment firm prefers to chide management of underperforming companies in private, but it turned heads last year when it publicly lost its temper with Seven & I 3382.T. The Japanese company's recent decisions to rejig its structure vindicates the fund's unusual move, though the financial value of its engagement remains poor.
The $34 billion company led by CEO Ryuichi Isaka has promised enough change to set the scene for a friendly investor day on Tuesday. The owner of 7-Eleven convenience stores said this month that it is considering an initial public offering of its loss-making superstores and announced it is separating the role of chairman and CEO. ValueAct says it will support Seven & i's board .
The activist ratcheted up pressure in 2023 when it took its fight directly to shareholders - a tactic it tried for the second time in its history, two years after revealing it held a 4.4% stake in the company. It called out the conglomerate's "dysfunctional management" and won support from proxy adviser ISS for all four of its board , including a replacement for Isaka. Ultimately, Seven & i's investors voted down the and the bruised fund resumed engaging with the company behind closed doors.
Fast forward and ValueAct is only getting part of what it wanted. It sought a spinoff of the convenience store business, rather than the superstores. But Seven & i has been gradually reshaping itself since the fund joined its register. It exited its apparel business and sold its Sogo & Seibu department store unit last year. What's more, the majority of the board's directors are independent.
The missing part for ValueAct is a financial reward. At one point, the investor reckoned 7-Eleven alone could be worth some 40% more than the entire group's value per share by 2024. Over three years, Seven & i has delivered an annualised total return of 13% compared with 21% for peer Pan Pacific International 7532.T and 16% for Topix .TOPX. Things might improve as Seven & i moves forward but the market isn't buying it yet. The investor's Japan fund, started in late 2022, has at least fared well.
By playing again with Seven & i, ValueAct has repositioned itself on the spectrum of activists as an engagement fund rather than greenmailer. That's important in a country where management is highly guarded, and where there are huge opportunities still to unlock.
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CONTEXT NEWS
ValueAct Capital on April 18 backed Seven & i's decision to consider an initial public offering of its superstore business. The U.S. fund held a 4.4% stake in the Japanese conglomerate by May 2021.
ValueAct said it supported the recommendations of Seven & i's strategic committee which were announced on April 10. This included the conclusions that a separation of 7-Eleven convenience stores from the superstore unit was in the best long-term interests of both businesses, employees and shareholders.
The fund also backed the split of the chairman and CEO roles at Seven & i and said it would vote in favour of the company's board , a year after it had its own candidates.
(Editing by Una Galani and Nivedita Bhattacharjee)
((For previous columns by the author, Reuters customers can click on DAGA/
anshuman.daga@thomsonreuters.com; Reuters Messaging: anshuman.daga.thomsonreuters.com@reuters.))