Seven & i Holdings Co. (SVNDY), the Tokyo-based retailer behind 7-Eleven convenience stores, is considering issuing several hundred billion yen of new shares to SoftBank Corp. (SOBKY), which owns a majority stake in PayPay, and PayPay Corp. NASDAQ:PAYP, Japan's dominant payments operator. Sumitomo Mitsui Financial Group Inc.'s credit card arm may also join the transaction, according to people familiar with the discussions. The companies are reportedly aiming to sign an agreement this summer, although negotiations remain fluid and a final deal may not be reached. Seven & i shares rose less than 1% in early Tokyo trading on Monday, while its American depositary receipts gained 2.3% to $13.50 on Friday. PayPay shares, which trade on the Nasdaq Global Select Market, fell 0.8% to $15.50 in New York.
The proposed investment could give Seven & i access to PayPay's 74 million users, SoftBank's mobile-customer base and technology that may support greater automation, AI-driven logistics and improved store efficiency. Bloomberg Intelligence analyst Lea El-Hage suggested that PayPay rewards and SoftBank's customer network could help bring more shoppers into Seven & i stores and support faster profit growth. However, the new share issuance would dilute measures such as earnings per share and return on equity, placing pressure on management to show that higher traffic, monetization and productivity can outweigh the impact on existing shareholders. The transaction would also represent a major change in Seven & i's long-standing strategy of avoiding large capital tie-ups in order to maintain flexibility and control over its business.
Investors may also view the presence of well-funded strategic partners as additional protection against activist pressure or future takeover attempts. Seven & i rejected an unsolicited approach two years ago from Alimentation Couche-Tard Inc., the Canadian operator of the Circle K convenience-store chain, while a proposed management buyout led by the founding Ito family also failed. Chief Executive Officer Steve Dacus has been restructuring Seven & i by selling an underperforming retail business, reducing its holdings in a banking unit and preparing to list its U.S. operations. Seven & i shares have gained 19% over the past five years, compared with a 65% increase in Japan's benchmark retail index and a more-than-doubling of the Topix, suggesting that investors may expect the company to turn its potential partnerships into stronger growth and improved operating performance.