By Makiko Yamazaki and Ritsuko Shimizu

Tokyo (Reuters)

Japanese companies cannot use national security designations to block foreign takeovers, according to a senior finance ministry official. This statement counters speculation that Tokyo’s foreign exchange act might be manipulated for protectionist measures.

These comments follow reports that retail giant Seven & i Holdings is seeking to be classified as “core” to national security under the Foreign Exchange and Foreign Trade Act (FEFTA) to avoid a buyout bid from Canada’s Alimentation Couche-Tard.

The official, who chose to remain unnamed, clarified that the “core” classification does not alter the government’s security review process regarding foreign bids for companies deemed significant to Japan’s economy or security.

Seven & i, valued at $38 billion, is currently listed in the finance ministry’s classification as a company engaged in “designated” rather than “core” businesses. “Core” businesses are those essential for national security and include sectors like nuclear power, space, and semiconductors.

Foreign entities must meet stricter notification requirements when acquiring stakes in companies classified as “core,” compared to those in “non-core” sectors. However, for any acquisition of control within a “designated business,” prior notification is necessary regardless of the classification.

The finance ministry official emphasized that classification does not influence the scrutiny level during security reviews. The ministry will assess whether transactions pose national security risks.

The classification list, which outlines prior notification requirements, is derived from surveys of all listed companies and does not require government approval. The official remained unnamed due to the sensitivity of the topic.

Regarding Seven & i’s pursuit of the “core” classification, the company stated it responded to the ministry’s recent survey by the August 23 deadline, detailing its current structure and businesses. This survey is unrelated to Couche-Tard’s buyout proposal disclosed on August 19.

Convenience stores, Seven & i’s primary business, are not in the designated sectors for FEFTA review, but the company has diverse operations, including financial services and security.

Japan previously blocked the London-based Children’s Investment Fund from acquiring shares in Electric Power Development Co, known as J-Power, in 2008. This was the only deal rejected under FEFTA; some plans have been amended or withdrawn during reviews, according to the finance ministry.