Wal-Mart to Take Majority Control of Japan's Seiyu
Mon Oct 3, 2005
By Yuka Obayashi and Yuko Inoue
TOKYO (Reuters) - Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) will take majority control of struggling Japanese retailer Seiyu Ltd. (8268.T: Quote, Profile, Research) through a combined 115 billion yen ($1 billion) rescue package, stepping further into the crowded Japanese market.
Of the total, Wal-Mart will inject up to 67.5 billion yen into Seiyu while Seiyu's main bank, Mizuho Corporate Bank, a unit of Mizuho Financial Group Inc. (8411.T: Quote, Profile, Research), and possibly other financial investors will pour in fresh funds by taking new shares, Seiyu said.
Wal-Mart, the world's biggest retailer, has maintained strong ties with Seiyu, the key to its expansion plans in Japan, where notoriously fickle consumers and complicated distribution systems have thwarted many foreign retailers, including France's Carrefour (CARR.PA: Quote, Profile, Research), that entered the market on their own.
Seiyu, Japan's fourth-biggest retailer, has been struggling to adopt Wal-Mart's sales strategy and posted a half-year net loss in August due to weak sales. It also reiterated its projection of a fourth straight full year in the red.
The U.S. firm, which has an option to boost its stake in Seiyu to 50.1 percent by the end of 2005, was widely expected to exercise the option and to inject fresh capital into Seiyu this year to prevent it from falling into negative net worth.
Seiyu said the capital increase was aimed at stabilising its financial base and raising funds for capital expenditure. It added that the deal would have no impact on its earnings estimates.
"Because of our weak financial condition, we have not been able to invest in new stores, IT and distribution systems," Seiyu's chief executive, Noriyuki Watanabe, told a news conference.
"But with the fresh funds coming in, we can aggressively make such an investment," he said.
MAJORITY CONTROL
The issuance will involve both preferred and ordinary stocks. Ordinary shares will be issued at 205 yen per share, a 32 percent discount to Seiyu's closing price on Friday of 271 yen.
The shares jumped 14.83 percent on the day, prior to the announcement. They outperformed a 0.39 percent rise in the retail sector subindex (.IRETL.T: Quote, Profile, Research).
Other details will be decided later, but Wal-Mart will raise its stake in Seiyu through the deal to above 50 percent by the end of this year from the current 42.4 percent.
Asked whether there would be any change in management structure after Wal-Mart takes a majority stake, Seiyu's Watanabe said he expected no major change.
The latest injection followed a capital increase for Seiyu in May by Wal-Mart and $42 million in additional investment by Wal-Mart and others late last year.
Wal-Mart, the world's biggest retailer, waded into Japan's notoriously competitive and fickle market in 2002 by taking 6 percent in Seiyu.
The U.S. retail giant had made an accumulated investment of 74.6 billion yen in Seiyu by the end of May and it has another option to raise its stake to 66.7 percent by the end of 2007.
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