Wal-Mart Stores Inc will spend up to 100 billion yen ($878 million) to buy out minority shareholders in Japanese supermarket unit Seiyu Ltd in an effort to turn around the money-losing chain.
The world's largest retailer has invested more than $1 billion in Seiyu since 2002, but has yet to see anything more than temporary upswings in sales amid tough competition with rivals such as Aeon Co.
Seiyu is headed for its sixth straight annual loss in 2007, which had led to speculation that Wal-Mart would either need to invest more in the unit or that it would pull out of Japan, as it did from South Korea and Germany last year.
We have not necessarily provided as strong a value as our customers would like, Ed Kolodzieski, Seiyu's chief executive, told a news conference.
The buyout will put an end to rumors Wal-Mart may abandon Japan, making it easier to do business with local suppliers and lenders, Kolodzieski said.
From a business partner and supplier standpoint, they too should also see this as very positive news, for Seiyu now has the full-backing of Wal-Mart, he said.
Wal-Mart, which currently owns 50.9 percent of Seiyu, said it would offer 140 yen per Seiyu common share in a tender offer from Tuesday through December 4. The offer price marks a 61 percent premium to Friday's closing share price of 87 yen.
Trade of Seiyu's shares was suspended by the Tokyo Stock Exchange on Monday, following reports of the buyout.
It really does give (Wal-Mart) the opportunity to do whatever they want to do with Seiyu, said Roy Larke, editor of Japan Consuming, an industry newsletter.
They still don't have a major share of the market but they do own the number three retailer in the country. They have a much solider base than they ever had in Korea and therefore something to build on, Larke said.
SIGNS OF PROGRESS
For the year to December 31 2007, the company has forecast a net loss of 10.4 billion yen.
However, there may be signs of progress: same-store sales showed their first annual rise in 15 years in 2006, although they still fell short of the company's target.
Seiyu's Kolodzieski said there were no plans to shut down any of the supermarket's nearly 400 outlets in Japan and that it was looking to accelerate its renovation of existing stores.
Last month, Seiyu said it would offer early retirement to 450 of its employees, or about 7 percent of its work force. In 2004 the company eliminated about 1,600 jobs.
Cracking Japan's retail market, the world's second-largest, has proved a challenge for foreign companies, due to fickle shoppers and tough competition.
In recent years France's Carrefour and Britain's Alliance Boots have both pulled out of the market.
Shares of Seiyu have lost three-quarters of their value since the end of 2002, the year when Wal-Mart first bought into the supermarket.
During the same period, the Tokyo stock exchange index of retail stocks has gained about 25 percent.