Dispute over Takeover: Sophisticated Defense Strategy along the FEFTA at Seven & i

In the course of the potential acquisition of Seven & i Holdings by the Canadian conglomerate Alimentation Couche-Tard, various measures to fend off the offer are being discussed. One of the more intriguing options includes changing the regulatory classification of the company based on the Japanese Foreign Exchange and Foreign Trade Act (FEFTA) to secure better protection, similar to sectors like nuclear and semiconductor technology. Internal sources at Seven & i confirm that considerations are being made to change the company's classification from "non-core" to a better-protected "core" rating. A spokesperson from Seven & i declined to comment on this speculation. These discussions emerged only ten days after Seven & i confirmed a preliminary takeover offer from Couche-Tard and established a special committee of independent board members to evaluate the proposal. Since this announcement, Seven & i shareholders view Couche-Tard's offer as a litmus test for Japan's political, legal, and societal stance on M&A activities. A long-term investor expressed concerns that internal defense measures could counteract the special committee's efforts. With a market capitalization of over USD 38 billion and repeated activist campaigns, a successful takeover of Seven & i by a foreign buyer could represent the largest deal of its kind in Japan. It is evident that the management of Seven & i is under pressure to better consider shareholder interests. The special committee, whose deliberations are expected to last until mid-September, was formed in accordance with the recently revised M&A guidelines of the Japanese government. These guidelines encourage Japanese companies to carefully review serious offers and appropriately assess the implications for shareholders. Investors see Couche-Tard's offer as a response to Seven & i management's failure to serve their long-term interests. Ben Herrick, Associate Portfolio Manager at Artisan Partner International Value, criticized the management's lack of urgency in increasing shareholder value. Should the company’s classification under the current FEFTA status remain, an acquisition would only be possible with government approval. A higher-value "core" classification, on the other hand, would mean stricter scrutiny by the Ministry of Finance. However, M&A lawyers in Tokyo specializing in FEFTA issues emphasize that such a request may not easily succeed. Nicholas Smith, Japan Strategist at CLSA Securities, pointed out that Seven & i, with its 180 subsidiaries, is also active in areas such as banking, insurance, fuel sales, and agricultural products. This could indeed raise larger regulatory concerns regarding a foreign takeover.