Japanese retail giant Seven & I Holdings is to sell down its stake in home-decor chain Francfranc as it narrows its focus on convenience retailing.
The parent of the 7-Eleven business bought a 49-per-cent share of Francfranc in 2013 for around US$36 million when the company was experiencing trading difficulties. But it has failed to realise the profits it anticipated despite robust restructuring and its extensive experience in the homewares category built through its department store heritage.
The Francfranc investment was just one of many forays into new retail categories as Seven & I tried to diversify its portfolio, struggling – like most Japanese companies – to maintain growth in a stagnant and ageing population. Other investments included Tower Records, Sogo & Seibu a maternity goods brand called Akachan Honpo, and Barneys Japan.
Shareholders have become wary of that strategy, pressing the listed retail group to sell down some of its non-core businesses. According to Reuters one hedge fund estimates the value of the 7-Eleven business could be higher than that of its parent, given falling specialty-store sales – down 9 per cent last year – and stagnant department-store takings.
Meanwhile, in May Seven & I spent US$21 billion buying a network of several thousand Speedway convenience stores and gas stations in the US, largely funded through borrowings.
Analysts say a recent recovery in Francfranc’s earnings – led by a store rationalisation program – has provided Seven & I with an opportunity to liquidate some of its investment. The chain achieved an operating profit of US$33.6 million in the August year – about 12 times the amount of the prior year and enough that Seven & I might receive the same price per share it originally paid for its stake.
The controlling shareholder – Francfranc’s founding family – will also sell down its stake resulting in the two owners holding a maximum of 49 per cent after a sale, giving an equity investor a controlling interest, while maintaining the expertise of the founders and Seven & I.
Analysts are tipping a sale by next month which could lead to the company launching an IPO.
