© Reuters. FILE PHOTO: A man uses a mobile phone outside a 7-Eleven convenience store in Tokyo, Japan December 6, 2017. REUTERS/Toru Hanai

By Svea Herbst-Bayliss

(Reuters) – Activist investor ValueAct Capital has amassed a $1.53 billion stake in Seven & i Holdings and is pushing the Japanese owner of the 7-Eleven convenience store chain to consider changes, including a potential break-up.

ValueAct told its investors on Wednesday in a letter seen by Reuters that it built a 4.4% stake in Seven & i and believes that the sum of its parts is worth much more than its current market value.

The hedge fund said the 7-Eleven business could be worth more than double what its parent is currently valued at if the company restructures itself to focus on the convenience stores or if 7-Eleven is spun out.

7-Eleven’s convenience stores are a consistent, high-return business, while Seven & i’s other retail and financial assets, such as real estate have not been contributing to cash flow of late even though they are backed by valuable assets, the investment firm noted.

“We invested in Seven & i Holdings at an estimated P/E ratio of 11 times, while global peers trade at 15 times to 25 times,” ValueAct said in the letter said.

Seven & i did not immediately respond to a request seeking comment.

The new stake in Seven & i marks a return to Japan for ValueAct, where shareholder activism is gaining traction and the firm has considerable experience, having made an investment in Nintendo last year and having previously bet on Olympus and JSR.

ValueAct underscored the role 7-Eleven could play for Japan in the letter, arguing it could become what McDonalds and Starbucks (NASDAQ:) are to the United States, what Inditex (MC:) is to Spain and Aldi is to Germany., A transformation could create a “21st century global champion” that provides jobs and innovation in its industry, ValueAct said.

But work is necessary to achieve these goals, ValueAct said, noting that 7-Eleven would need to speed up its global digitalization strategy. In the United States, it could focus more on food, which can be quickly tailored to tastes, and cut corporate costs, the firm suggested.

Over the last months, ValueAct has been engaging with Seven & i’s board directors and management and is “optimistic” that it can continue to build trust and alignment with the company, it said in the letter.

ValueAct, run by Mason Morfit, is up 18% since January 2021 after returning 12.5% last year, an investor in the firm said.

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