The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to add dropped words in third paragraph. Updates to add graphic.

By Hudson Lockett

HONG KONG, March 4 (Reuters Breakingviews) - The best guide to what Seven & i 3382.T should do next lies in its falling market value. Shares of the Japanese convenience store owner shed 10% on Tuesday after Yomiuri Shimbun reported, without citing sources, that the company would reject a $47 billion takeover proposal from Canada's Alimentation Couche-Tard ATD.TO. It spotlights how difficult it will be for Seven & i to unlock its full value without a deal.

Investors don't trust the company behind the 7-Eleven brand to improve its returns on its own. The stock is trading a mere 10% above its undisturbed level and 26% below the value of Couche-Tard's proposal equivalent to 2,711 yen based on current exchange rates. What's more, the shares barely rose on Monday after media reports said Seven & i planned to replace CEO Ryuichi Isaka with Stephen Dacus, lead independent director and head of the special committee assessing the takeover proposal.

History compels this scepticism. Isaka, former head of Seven & i's profitable convenience store unit, was swept into office in 2016 with the support of U.S. activist investor Daniel Loeb, who argued the group should sell lossmaking businesses. But Isaka’s predecessor was made honorary advisor, a common arrangement in Japan that can hobble a company’s capacity to make serious changes. Since Isaka’s ascent, Seven & i’s stock had risen 11% compared to a 71% gain for the Topix index .TOPX prior to Couche-Tard's initial offer. So, suggestions in media reports that Isaka will stay on as special advisor raise questions over how much his successor could achieve.

An ex-Walmart executive, Dacus initially did well holding Couche-Tard’s feet to the fire. He forced the Canadians to boost their offer price but progress has stalled. The goal should be to get Couche-Tard to make a serious offer — in yen, rather than its current bid in US dollars — and push for a sum closer to the target's full break-up value, calculated at about 3,500 yen by Breakingviews.

The delay in engaging with Couche-Tard has been costly: six months have passed and competitive tension around a takeover disappeared last week with the collapse of a take-private plan by the Ito family. Even if the new CEO rewrote Seven & i's entire strategy without the old boss in the background, a turnaround would be a grind. The bulk of Seven & i's value lies in North America and Couche-Tard's business there boasts superior profit margins. Shareholders and history favour a deal.

Follow @KangHexin on X

CONTEXT NEWS

Shares in Seven & i dropped 10% on March 4 after Yomiuri Shimbun said that the company planned to reject a $47 billion takeover proposal from Canada's Alimentation Couche-Tard. The report in the Japanese publication did not cite any sources.

The stock rose 1% a day earlier on multiple media reports which said the retail giant was set to approve Stephen Dacus, lead independent director and head of a special committee evaluating offers, to replace boss Ryuichi Isaka at a board meeting on Thursday.

Seven & i stock is trading at around 2,000 yen compared to an undisturbed price of 1,761 yen on August 16 prior to the Canadian group’s offer.

(Editing by Una Galani and Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on LOCKETT/ hudson.lockett@thomsonreuters.com))