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Japan Post announced Thursday it has agreed with Daimaru Inc. to acquire a controlling stake in Asocia Corp., the department store chain’s wholly owned distribution services subsidiary.

If approved by the Internal Affairs and Communications Ministry, Japan Post will purchase a 67.6 percent stake in Asocia for some 650 million yen on Oct. 3, making it the first merger and acquisition for the state-backed postal entity, its officials said.

Daimaru will continue to hold the remaining 32.4 percent of the Osaka-based company, whose mainstay business is to act as a shipping agent for Daimaru group firms, including the storage and packing of parcels.

The move is expected to further fuel criticism that Japan Post is muscling out private-sector firms, especially as it comes after government-sponsored bills to privatize the entity were voted down in the House of Councilors during the last Diet session and in the midst of a general election campaign in which postal privatization is a key issue.

Thursday’s deal is in line with Japan Post’s effort to become a comprehensive delivery company in the face of a continued decrease in regular mail delivery. The postal entity is also looking to make investments in other distribution firms, with a view to becoming a comprehensive distribution company that handles parcels from their packing to their dispatch and delivery.

However, observers said Japan Post’s strategy is to expand its business to the maximum extent possible under existing laws in order to stabilize its management.

In making the acquisition announcement, Japan Post President Masaharu Ikuta issued a statement, saying, “By making a shipping agent our subsidiary, Japan Post will be able to provide comprehensive postal services in line with customer needs.”

Asocia, with a workforce of 1,280, including part-timers, chalked up 11.9 billion yen in operating revenue in the 2004 business year.

Asocia farms out most of the delivery of parcels to other companies. In the March-July period, Japan Post’s Yu-Pack service accounted for 20 percent of the delivery and Yamato Transport Co. captured a 10 percent share.

Japan Post plans to handle Asocia’s logistic work exclusively through the Yu-Pack service after converting the firm into a subsidiary.

It plans to send three officials to Asocia’s five-member board, which currently has five directors, and will reorganize its operations to fit with Japan Post’s strategy and sell its services to other department store chains.

Investments by Japan Post are regulated by law, and it can only pump money into businesses that are linked to its core business, including mail delivery.

Japan Post’s aggressive business expansion is seen to be fueled by its sense of crisis that its management will slowly but surely deteriorate if it clings to the limited operations of a state-managed entity, observers say.

Ikuta has indicated that regardless of whether privatization becomes a reality, business expansion is the way the postal business can survive.

However, because of the various merits of being a state-backed entity, including tax breaks, critics are quick to point out that such an enlargement as a public corporation hurts private-sector rivals.

In fiscal 2004, Japan Post handled some 7 percent of domestic parcel deliveries, a fraction of the 34 percent of industry leader Yamato Transport. However, following a deal with Tobu Department Store, Japan Post will handle 70 percent of the roughly 2.8 million parcels the emporium handles annually, successfully breaking down a section of a Yamato Transport bastion.

Also last month, Japan Post surpassed Yamato Transport in terms of the number of convenience stores with which it had business arrangements, as the chains severed their ties with Yamato.

In the future, Japan Post is also expected to make forays into the financial sector, including by expanding the investments it makes using money it has from postal savings deposits and the postal life insurance system.

Currently, that money only goes to purchasing government bonds, but Japan Post plans to expand that to asset-backed securities. It also plans to start selling investment trusts, and such activities will likely lead to more friction with the private sector.

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