ValueAct Capital, a major, long-term shareholder of Seven & i Holdings (JP:3382, US:SVNDY), has called for the removal of the company’s president due to a long track record of bad faith decisions, as outlined in an open letter sent to shareholders on April 20.

The letter detailed a series of recent events that included the denial of an independent investigation of secret recordings of shareholders, as well as the denial of an independent review of a shareholder proposal.

San Francisco-based ValueAct has proposed a refreshed board with a mandate to select a new president through an independent process, in line with Japan’s Corporate Governance Code. The activist is seeking a new president who will prioritize stakeholder interests and improve performance.

Board Overhaul

Some brief analysis from the Fintel platform’s financial metrics and ratios page for Seven & i Holdings shows that the company has improved cash flow generation from operations in recent years.

The open letter proposed that four entrenched and long-tenured incumbent birectors be removed: Ryuichi Isaka (president), Katsuhiro Goto (VP), Kunio Ito (Nomination committee chair), and Toshiro Yonemura (Nomination committee member).

ValueAct, which manages more than $16 billion for institutional investors, also proposed to re-elect the six new independent outside directors who joined the board in 2022 and four inside directors who directly manage major business functions within the organization to ensure operational continuity. Additionally, ValueAct nominated four new independent outside directors who are qualified diverse business leaders with relevant skills and experiences.

Seeking Spin-out

Seven & i, a conglomerate which owns ‘Big Gulp’ creator 7-Eleven, with interests in retail, real estate, finance, and energy, has been struggling to provide shareholders with an objective review of the company’s structure after years of poor corporate value creation and underperformance. Ryuichi Isaka has run the company for the last seven years.

ValueAct has been unable to establish confidence in the management, its strategy, or governance of the company, despite extensive dialogue over several years. The board’s “Group Strategy Re-Evaluation,” which began in September 2022, was expected to result in a restructuring of the conglomerate, including the creation and listing of a global champion 7-Eleven company which could be worth around 8,500 Japanese yen ($63.36) per share.

When the company provided its update in March, ValueAct was disappointed by the lack of change with senior management’s “keeping the status quo”. The investor said that it shared the letters publicly to stress urgency on the matter.

Seven & i’s Board has not yet responded to ValueAct’s open letter.

Seeking Transparency

Jefferies analyst Shunsuke Kuriyama said that the intention to keep current the CEO and nominate two additional outside directors that the AGM was widely expected and thinks the nomination process appeared more transparent than before.

The analyst believes this was a positive sign of governance for the company and kept his ‘buy’ call and 7,300 yen target on the stock, versus current level of 5,980 yen per share.

Fintel’s consensus target price of 7,005 yen suggests the Street thinks Seven & I’s share price could rise around 17% over the next year.

A chart from Fintel’s forward forecasts page shows that analysts are expecting sales to plateau this year before potentially returning to a period of growth again in 2024.

Funds Exiting

Research from the Fintel platform highlighted that Seven & I has seen a decline in institutional share ownership over the last quarter. The number of institutions on the register has declined by 3.3% to 348 in total.

Institutions own a total of 122.13 million shares, but funds have reduced the average portfolio allication to the stock by 1%.

Fintels Fund Sentiment Score of 41.35 is bearish on the stock, ranking it in the bottom third of companies when ranked against 37,280 other globally screened securities.

This article originally appeared on Fintel

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.