Wal-Mart set to pay ¥100 billion to take over ailing Seiyu

by Kaho Shimizu

U.S. retail giant Wal-Mart Stores Inc. said Monday it will launch a ¥100 billion takeover bid to make its struggling Japan unit Seiyu Ltd. a wholly owned subsidiary and speed up its turnaround drive.

The tender offer will run Tuesday through Dec. 4 with an offer price of ¥140 per share, representing a premium of 34.6 percent over the average closing price for the last three months.

If Seiyu becomes fully owned by Wal-Mart, it will be delisted by the Tokyo Stock Exchange.

“This marks an exciting new chapter for us and reaffirms Wal-Mart’s strong commitment to Japan,” Wal-Mart Senior Vice President Brett Biggs said at a news conference in Tokyo.

Seiyu, now owned 50.9 percent by Wal-Mart, was in the red for the sixth straight year in business 2006 and expects to post another net loss this year.

The struggling supermarket chain on Monday reported a net loss of ¥11.4 billion for the January-September period. It was an improvement from the ¥59.5 billion loss reported during the corresponding period a year earlier.

However, the company still expects to post a ¥10.4 billion net loss for the full year to December.

Wal-Mart entered the Japanese market by initially acquiring a 6 percent stake in Seiyu in 2002 and gradually increased its share to own a majority in December 2005.

Since then, Wal-Mart has invested about ¥147 billion in such projects as renovating Seiyu outlets and upgrading its computer system but has been unable to bring it back to profitability.

“We believe in a long-term potential of the (Japanese) market,” Biggs said, adding that Wal-Mart is convinced its way of doing business will eventually work well in the Japanese market. “We also believe that Wal-Mart will benefit from being in the Japanese market. We learn a lot from (this) market, where consumers are among the most sophisticated in the world.”

Speculation has been rife that Wal-Mart could withdraw from Japan in the coming years if Seiyu continues to struggle.

However, Biggs said one of the reasons for making Seiyu a wholly owned subsidiary is to shrug off such speculation.

He said the announcement should comfort Seiyu employees as it ensures a 100 percent commitment from Wal-Mart.

“From the business partner and supplier standpoint, they too should also see this as very positive news (because) Seiyu now has the whole-backing of Wal-Mart and they can partner with us and collaborate with us as we grow our business here,” he said.

Seiyu operates 393 stores across the country. Biggs said Wal-Mart currently has no plans to close any outlets, nor does it have plans of changing the store’s name.

Cosmo Securities Co. analyst Koichiro Ogawa said acquiring 100 percent of Seiyu will allow Wal-Mart to carry out rehabilitation initiatives more quickly, especially given that the company will be delisted and there will no longer be interference from shareholders only seeking short-term gains.

But at the same time, Ogawa said, Wal-Mart should change its strategy if it wants to turn Seiyu around.

“Weak consumer spending was one of the reasons Seiyu has been struggling, but the supermarket chain cannot solely blame the harsh business environment,” Ogawa said.

“Wal-Mart entered the Japanese market without fully analyzing it,” he said, adding that the initiatives Wal-Mart introduced at Seiyu did not match the desires of Japanese consumers.

For example, Seiyu introduced Wal-Mart’s slogan of “everyday low prices,” but the strategy was undermined because Japanese consumers decide which store to shop at on a particular day by comparing advertisements to see which products are discounted the most on that particular day, Ogawa said.