7-Eleven parent's new security rating won't affect a buyout, Japan minister says

By Makiko Yamazaki

TOKYO (Reuters) -The new classification of 7-Eleven's parent company as "core" to Japanese national security will not raise hurdles to a potential buyout, Japan's finance minister said on Tuesday, comments that appeared aimed at easing investor concerns about the move.

"We can't say the core classification makes a buyout more difficult," Suzuki told reporters, days after Seven & i Holdings became one of 88 companies added to the government's list of companies regarded as crucial to national security.

The change prompted speculation among some market participants that Seven & i, which was previously designated as "non-core" was attempting to better defend itself from a potential takeover by Canada's Alimentation Couche-Tard.

Seven & i this month rejected a $38.5 billion offer from Circle-K owner Couche-Tard, citing concerns about price.

The potential deal is being closely watched not only for the implications for the retail industry - where it would create a globe-spanning convenience store giant - but also for further clues about the trajectory of Japan's governance reform.

The benchmark Nikkei share average has powered through a series of record highs this year, a once seemingly impossible feat, as foreign investors have rallied behind what they see as meaningful governance change.

Any whiff of protectionism such as blocking of foreign takeovers on less-than-credible grounds could blunt enthusiasm for both the stock market and mergers and acquisitions (M&A), market participants have said.

"In principle Seven & i's reclassification to core-sector should not change the deal outcome," Jefferies analysts said in a note on Tuesday. "It's a litmus test for government resolve on enhancing corporate/shareholder value through a fair M&A market."

SELF-REPORTED

It was not immediately clear what part of Seven & i's sprawling businesses justified the change. The conglomerate runs a security business and a bank, both of which are widely seen as more critical to Japan's security than its vast network of 7-Eleven stores or its Denny's family restaurants.

Finance ministry officials said repeatedly at a Friday briefing that the national security classifications that appear in its list are mainly self-reported by companies and not a government acknowledgement that those in the "core" list are crucial for national security.

Whether a business categorised as "core" is crucial or not will be determined during an actual review, they said.

"Japanese companies had long been unattractive targets, so buyout proposals like this are welcome, especially as Japan is eager to expand foreign direct investment," one senior government official told Reuters.

"A buyout by Couche-Tard will boost Japan's market reputation," the official added.

When a company is categorised as core, foreign entities seeking to buy a stake of 1% or more in the Japanese firm must in principle file for a national security review with the Japanese government prior to the purchase.

In cases where control is sought, however, Suzuki said prior notification for a review is mandatory "regardless of whether they are categorised as core or non-core."

(Reporting by Makiko Yamazaki; Editing by David Dolan, Edwina Gibbs and Jamie Freed)