ISS Backs Seven & i’s Strategic Overhaul Amid Takeover Defiance

The Nikkei’s report that Institutional Shareholder Services (ISS), the influential U.S. proxy advisory firm, is recommending support for Seven & i Holdings’ proposals at its May 2025 AGM signals a critical endorsement for Japan’s largest convenience store operator. The recommendation underscores investor confidence in the company’s aggressive restructuring to fend off a hostile takeover bid by Canadian rival Alimentation Couche-Tard (ACT), while unlocking value for shareholders.

The Tokyo-based retailer has been racing to simplify its structure, divest non-core assets, and solidify its leadership under a new CEO—moves ISS has deemed shareholder-friendly. Here’s why the strategy matters, the risks, and what investors should watch.

Core Focus: Divesting to Defend

Seven & i’s overhaul is centered on prioritizing its crown jewel: the 7-Eleven chain, which operates 35,000 stores globally. The company is jettisoning non-core businesses, including its Superstore Business Group—a collection of grocery and specialty retailers sold to private equity firm Bain Capital for JPY 814.7 billion (USD 5.37 billion). The deal, closing in September 2025, will leave Seven & i with a 35% stake in the new entity.

The sale is part of a broader capital reallocation plan. Proceeds from the Superstore sale, combined with an anticipated 2026 IPO of 7-Eleven North America (SEI), are projected to total ~JPY 2 trillion (USD 13.2 billion). These funds will fuel share buybacks by FY2030 and a progressive dividend policy, aiming to return capital to shareholders amid a hostile takeover battle.

ISS’s Green Light—and Caveats

ISS’s support for Seven & i’s proposals is significant because its recommendations heavily influence institutional investors. However, the advisory firm is withholding votes for two directors due to governance shortcomings, including opaque executive compensation practices and inadequate disclosure on prior shareholder concerns.

The firm also opposed a shareholder rights proposal from management, citing insufficient transparency on board diversity and ESG reporting. Despite these reservations, ISS acknowledged improvements in compensation disclosure and alignment with governance standards, reversing its 2024 stance against the company’s “Say on Pay” vote.

Leadership Shift and Strategic Independence

The appointment of Stephen Hayes Dacus as CEO post-AGM is a pivotal move. The American-born executive, fluent in Japanese, brings decades of consumer retail experience and a focus on shareholder value. His ascension marks a break from the previous era under Ryuichi Isaka, who transitions to a senior advisory role.

Dacus faces immediate challenges: finalizing the Bain Capital deal, navigating regulatory hurdles for the SEI IPO, and fending off ACT’s takeover bid. ISS’s recommendation signals that investors see his leadership as a stabilizing force amid these risks.

The Takeover Battle and Regulatory Hurdles

ACT’s JPY 10 trillion (USD 66 billion) bid remains a wildcard. The company is exploring divestiture packages to address antitrust concerns in Japan and the U.S., but uncertainties linger. ISS’s support for Seven & i’s “strategic independence” path—prioritizing the restructuring over a deal—reflects skepticism about the takeover’s viability.

Risks and the Road Ahead

While the restructuring promises value, execution is far from guaranteed. Key risks include:
- Regulatory Delays: The SEI IPO timeline hinges on U.S. and Japanese approvals, which could face scrutiny over antitrust concerns.
- Market Volatility: The Superstore sale’s proceeds and SEI’s valuation depend on investor appetite for retail stocks, which have been volatile amid economic uncertainty.
- Dividend Sustainability: The progressive dividend policy assumes steady cash flows from 7-Eleven’s operations—a model tested by rising labor costs and competition.

Conclusion: A High-Reward, High-Risk Gamble

ISS’s recommendation paints a cautiously optimistic picture for Seven & i’s AGM. The company’s aggressive moves to simplify its structure and return capital align with shareholder interests, but success hinges on executing its multiyear plan flawlessly.

The JPY 2 trillion in proceeds from asset sales and the SEI IPO offer a clear path to re-rating the company’s valuation. However, the 35% stake retained in the Superstore business and regulatory approvals for the IPO remain open questions.

Investors should watch two key metrics:
1. SEI IPO Valuation: If the North American division’s market cap surpasses its private valuation, it could add JPY 500 billion–1 trillion to Seven & i’s equity value.
2. Buyback Execution: The company’s ability to repurchase shares by FY2030 without diluting earnings will test its financial discipline.

For now, ISS’s nod suggests that the market is betting on Seven & i’s strategy to outmaneuver ACT and deliver returns. But with so much riding on execution, this is a story to monitor closely.