Aeon may sell shares to fund acquisitions

Japan's largest supermarket chain in talks for stakes in rivals Daiei, Maruetsu

Aeon, Japan's largest supermarket chain, may sell shares to help pay for stakes in two smaller rivals - acquisitions that will increase its share of the nation's US$1.1 trillion retail market.

Aeon said it is in exclusive talks to acquire a 15 per cent stake in Daiei, Japan's third-biggest retailer, from Marubeni Corp.

The company may also buy 20 per cent of supermarket operator Maruetsu from Daiei, raising the combined cost of the acquisitions to about 75 billion yen (HK$4.88 billion).

'We are considering several ways to raise money,' Aeon spokesman Masakazu Ogura said. 'At this point we haven't made a decision.'

The retailer will sell 100 billion yen of stock to help pay for the purchases, the Tokyo Shimbun newspaper reported on Saturday.

Daiei, emerging from bad debts that resulted in a government bailout, is the latest acquisition target for Aeon, which has revived two bankrupt supermarket chains in the world's second-largest economy.

The proposal thwarts a rival bid by Wal-Mart Stores.

'It's a good match for everyone involved,' Asahi Life Investment fund manager Makoto Sakuma said. 'Aeon is good at restructuring failed companies.'

Aeon shares, which have declined 8 per cent this year, gained 3.6 per cent to 2,760 yen in Tokyo on Friday. Daiei finished 3.7 per cent higher at 1,955 yen, while Maruetsu climbed 5.8 per cent to 635 yen.

Last month, Aeon became Japan's first non-financial company to sell 50-year debt as it refinances short-term borrowings. It sold a total of 31 billion yen of securities.

In July, Marubeni, Japan's fifth-largest trading company, paid 69.8 billion yen for a 44.6 per cent stake in Daiei from the government, becoming its largest shareholder. It also holds a 28.8 per cent stake in Maruetsu.

Marubeni aims to remain Daiei's biggest shareholder, company spokesman Kaoru Kuzume said on Friday.

The exclusive negotiations expire at the end of March.

Maruetsu, 37.8 per cent owned by Daiei, had 201 stores in Tokyo, Kanagawa, Saitama, Chiba, Ibaraki and Tochigi as of February 28.

In August, Marubeni president Nobuo Katsumata said Aeon and Wal-Mart had approached the trading company about buying Daiei shares. The United States retailer refused to confirm the approach.

Aeon president Motoya Okada said he applied to buy shares in Daiei held by Marubeni.

Sales at Aeon accounted for about 3.4 per cent of the Japanese retail market or 4.43 trillion yen in the year to February 20.

Daiei, which had 209 stores nationwide as of June 30, had sales totalling 1.68 trillion yen or 1.3 per cent of the overall market in the same period.

Aeon had 1,159 stores and about 150 discounters nationwide as of August 20.

The retailer acquired shopping centre developer Diamond City and delicatessen food provider Origin Toshu in the past year and bought and restructured bankrupt supermarket chains Yaohan Japan Corp and Mycal Corp.

Last year, Aeon bought Carrefour's eight stores in Japan when Europe's largest retailer pulled out of the supermarket business in the country.

Maruetsu, originally started in Saitama, expanded chains in the Tokyo region.

It listed on the main board of Tokyo Stock Exchange in 1984.

'We are considering ways to raise money; we haven't made a decision' Masakazu Ogura Aeon spokesman