Aeon Co Ltd, Japan's No.2 retailer, said it wants to increase its ties with drugstore operator CFS Corp as it seeks to scupper a $120 million takeover of CFS by rival Ain Pharmaciez Inc.
However Aeon, CFS's top shareholder with a 15 percent stake, ruled out increasing its stake while it tries to block the share swap deal agreed by CFS and Ain, Japan's top pharmacy chain.
Nor does it expect a bitter proxy fight in the leadup to a shareholders meeting scheduled in January, the company said.
In the proposal submitted to CFS management on Friday, Aeon said it would offer CFS a business tie-up including combining their purchasing power and use of store brand labels.
These measures will bring about a swift business improvement of struggling CFS, and they are the best way to maximize its corporate and shareholder value, Aeon said in a statement.
Takehiko Ishida, CFS vice president, said they would study the proposal.
We are sorry to cause troubles for shareholders, but we believe the integration with Ain Pharmaciez will pay them back by increasing our value in the near future, Ishida said.
Ain Pharmaciez and CFS proposed the deal in October, but Aeon objected, saying it disadvantaged CFS shareholders.
Under the deal, CFS, which is also a supermarket store operator, will swap one of its shares for 0.3 share in a holding company to be created, while Ain Pharmaciez will get 1.25 shares of the new company for each of its shares.
Aeon said the proposal CFS at 504 yen per share, based on Ain Pharmaciez's closing price on October 4, the day before the announcement.
It argued CFS should be valued at least 800 yen per share after it improves performance by implementing Aeon's proposal.
Shares of CFS rose 2 percent to 502 yen while Aeon closed down 4.7 percent at 1,591 yen. The Nikkei average fell 1.6 percent.
CFS and Ain Pharmaciez have said the combination of the two is complementary, since the former's drugstore business is centered around over-the-counter medicines, while the latter has expertise in prescription drugs.
The new company would be the nation's biggest firm in terms of drug sales and the second biggest in terms of overall revenues, CFS and Ain said when announcing the plan.
Japan's dispensing pharmacy industry, dominated by one-person outlets and small chain stores, is seen as ripe for mergers and acquisitions, with Ain one of the most aggressive suitors.
Fast-ageing Japan introduced a new prescription regime in April 2007 to help promote the use of generic medicines in an effort to trim ballooning medical costs.
Other planned law revisions will relax restrictions on supermarkets selling over-the-counter drugs.
CFS and Aeon entered into an business and capital tieup in 2000. The move was part of Aeon's drive to team up with regional drugstore operators to form a nationwide chain.
But CFS, whose stores are located in and around Tokyo, has been struggling amid fierce competition and rising cost, slipping into 3.2 billion yen net loss for the year to February.
(Additional reporting by Aiko Hayashi and Ritsuko Shimizu; Editing by Lincoln Feast)