Japan retailer Aeon in talks to buy 100 - yen chain

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Japan retailer Aeon in talks to buy 100 - yen chain

TOKYO Aeon, the Japanese retailer best known for its huge hypermarkets that bear its name, looks to acquire 100 - yen chain Can Do to gain expertise in a segment of the market where it struggles.

Can Do, with about 1,140 outlets nationwide, is Japan's third largest discount chain selling goods ranging from kitchen and office supplies to toiletries and food, generally at a flat price of 100 yen each. Many of the shops are near popular trains and products often feature major characters. The company raked in sales of 73 billion yen $643 million for the year ending November 2020.

The chain will give Aeon, which operates shops and general merchandise - stores, a tool to develop a new income source. The company is seeing new income through slower sales of clothing and home-related items during the pandemic and has been seeking to nurture slow revenue sources. It had tried to increase low-priced goods but produced disappointing results due to our lack of know-how, a senior executive said.

With Can Do's development capabilities, Aeon looks to expand its own line of affordable products. The 100 - to 500 - yen chain also will open locations within Aeon Groups malls and stores and tap Aeon's distribution web for cost cutting as well as customer data for product development.

But Can Do faces its own challenges. With decreased foot traffic during the pandemic, the company downgraded its 2021 forecast Thursday, expecting group net profits to decline to 300 million yen - - about 160 million yen lower than an earlier projection.

Prices of raw materials such as plastics are increasing, while manufacturing costs in production hubs like Southeast Asia and China are increasing due to economic growth. Workers and office costs at home are also rising due to increases in the minimum wage. Soaring marine shipping rates have added pressure on profit margins. It is unclear which synergies between the two retailers can be reaped in the early stages.

Aeon, which currently owns no shares in the company, hopes to obtain 51% control via two rounds of tender offers and a direct buyout of shares from the founding family. Can Do is expected to remain listed on the first section of the Tokyo Stock Exchange.

The first tender offer will be conducted from Thursday through November 24 for 2,700 yen a share - a 30% premium over Can Do's closing price on Thursday - - for a stake of up to 37.18%.

By the end of the second tender offer, which will be priced at 2,300 yen a share on Dec 27, Aeon aims to hold a 51% interest for a cost of just over 20 billion Yen or about $176 million.

Even with the lower price in the second round, which is intended to ensure fairness in the stock market in the words of a spokesperson, more shares than expected may be tendered, potentially leading Can Do's stock to miss the listing criteria. In that case, Aeon would unload some shares to keep the target publicly traded.

President Kazuya Kido will stay in his post after the company becomes a subsidiary of Aeon, which could send a few personnel to become Can Do directors.