Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Event-Driven

Leading home centre group <a href="https://www.smartkarma.com/entities/dcm-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:13042:1" rel="noopener">Dcm Holdings (3050 JP)</a> announced it will acquire <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu Co Ltd (8184 JP)</a>, the seventh largest chain, in November. The move will catapult DCM back to the top of the ranking.
The deal could also provide a catalyst for further consolidation in a sector that’s long overdue for more after remaining static for much of the past 15 years. While the drugstore and homecentre sectors are very different, they do share one similarity: the leaders dominate in certain territories but none are true national retailers. In drugstores, national coverage through M&amp;A has been happening in the last two years but in homecentres only two firms are cross-regional.
While the leading 10 chains had a 65.5%, share and the top 30 more than 90% in FY2019, to scale effectively against competition from all sides, true national leaders will have to emerge.
The proposed takeover is also an expression of the current flux in the homecentre market as consumers increase further their consumption of home decoration and home improvement category. Although this is a long-term trend, homecentre retailers were slow to exploit this, leaving the field to <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a> and other dedicated home decoration retailers.
There are now more signs of the sector leaders doing more to widen private label merchandise ranges to take a slice of this growing market, and some are even launching dedicated chains (<a href="https://www.smartkarma.com/insights/targeting-nitori-cainz-follows-workman-s-success-into-homeware-retailing-with-style-factory-chain" target="_blank" rel="noopener">see this insight for a detailed look at the new threat to Nitori from Cainz</a>, the unlisted homecentre sector leader – at least until DCM absorbs Shimachu). See this separate insight for more on this. Shimachu will be a key help to DCM in targeting this market given its more consumer-oriented history.
I.e. this is not just another old-style Japan retail case of expansion for the sake of it, but a genuinely interesting and useful strategic deal.

Leading home centre group Dcm Holdings (3050 JP) announced it will acquire Shimachu Co Ltd (8184 JP), the seventh largest chain, in November. The move will catapult DCM back to the top of the ranking.
The deal could also provide a catalyst for further consolidation in a sector that’s long overdue for more after remaining static for much of the past 15 years. While the drugstore and homecentre sectors are very different, they do share one similarity: the leaders dominate in certain territories but none are true national retailers. In drugstores, national coverage through M&amp;A has been happening in the last two years but in homecentres only two firms are cross-regional.
While the leading 10 chains had a 65.5%, share and the top 30 more than 90% in FY2019, to scale effectively against competition from all sides, true national leaders will have to emerge.
The proposed takeover is also an expression of the current flux in the homecentre market as consumers increase further their consumption of home decoration and home improvement category. Although this is a long-term trend, homecentre retailers were slow to exploit this, leaving the field to Nitori Holdings (9843 JP) and other dedicated home decoration retailers.
There are now more signs of the sector leaders doing more to widen private label merchandise ranges to take a slice of this growing market, and some are even launching dedicated chains (see this insight for a detailed look at the new threat to Nitori from Cainz, the unlisted homecentre sector leader – at least until DCM absorbs Shimachu). See this separate insight for more on this. Shimachu will be a key help to DCM in targeting this market given its more consumer-oriented history.
I.e. this is not just another old-style Japan retail case of expansion for the sake of it, but a genuinely interesting and useful strategic deal.

A New Era of Home Centre Consolidation Starts as DCM Buys Shimachu

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/693/original/2020-09-14_09-50-37.png?1600044664" class="editor-image img-responsive" data-smartkarma-image-id="158693"></figure><div class="content-caption">Source for all charts &amp; tables except as stated: Japan Analytics</div>EQUITY-DRIVEN - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/694/original/File%202020-09-14%2010%2007%2037.jpeg?1600045681" class="editor-image img-responsive" data-smartkarma-image-id="158694"></figure><div class="content-caption">Source: multpl.com</div>BOOK VALUE PER SHARE - In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (9432 JP)</a> which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as <a href="https://www.smartkarma.com/entities/sosei-group-corp" target="_blank" data-smartkarma-citation="entities:770:1" rel="noopener">Sosei (4565 JP)</a>.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/696/original/2020-09-14_10-26-48.png?1600046818" class="editor-image img-responsive" data-smartkarma-image-id="158696"></figure>WINNERS - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">Monotaro (3064 JP)</a>, <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, <a href="https://www.smartkarma.com/entities/gmo-payment-gateway-inc" target="_blank" data-smartkarma-citation="entities:1492:1" rel="noopener">GMO Payment Gateway (3769 JP)</a>, and <a href="https://www.smartkarma.com/entities/kobe-bussan-co-ltd" target="_blank" data-smartkarma-citation="entities:4701:1" rel="noopener">Kobe Bussan (3038 JP)</a>. Some of the more surprising entries are <a href="https://www.smartkarma.com/entities/mixi-inc" target="_blank" data-smartkarma-citation="entities:602:1" rel="noopener">mixi (2121 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyo-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:15457:1" rel="noopener">Tokyo Electric Power (9501 JP)</a>.  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/697/original/2020-09-14_10-33-13.png?1600047204" class="editor-image img-responsive" data-smartkarma-image-id="158697"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/698/original/2020-09-14_10-33-41.png?1600047231" class="editor-image img-responsive" data-smartkarma-image-id="158698"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/701/original/2020-09-14_10-47-56.png?1600048087" class="editor-image img-responsive" data-smartkarma-image-id="158701"></figure>LOSERS - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (<a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan (7201 JP)</a>, <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin (2503 JP)</a>, <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil (5938 JP)</a>, and <a href="https://www.smartkarma.com/entities/aeon-co-ltd" target="_blank" data-smartkarma-citation="entities:3:1" rel="noopener">Aeon (8267 JP)</a>).  Also among the latter are two medical-related business - the now remained <a href="https://www.smartkarma.com/entities/h-u-group-holdings-inc" target="_blank" data-smartkarma-citation="entities:16580:1" rel="noopener">H.U. Group (4544 JP)</a> (formerly Miraca) and recent Bain PE target <a href="https://www.smartkarma.com/entities/nichii-gakkan-co" target="_blank" data-smartkarma-citation="entities:6790:1" rel="noopener">Nichii Gakkan (9792 JP)</a>.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/706/original/2020-09-14_10-57-45.png?1600048692" class="editor-image img-responsive" data-smartkarma-image-id="158706"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/707/original/2020-09-14_10-59-22.png?1600048774" class="editor-image img-responsive" data-smartkarma-image-id="158707"></figure>In the DETAIL section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.

Source for all charts &amp; tables except as stated: Japan AnalyticsEQUITY-DRIVEN - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.Source: multpl.comBOOK VALUE PER SHARE - In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as NTT (9432 JP) which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as Sosei (4565 JP).WINNERS - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as Monotaro (3064 JP), M3 (2413 JP), GMO Payment Gateway (3769 JP), and Kobe Bussan (3038 JP). Some of the more surprising entries are mixi (2121 JP) and Tokyo Electric Power (9501 JP).  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.LOSERS - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (Toshiba (6502 JP), Nissan (7201 JP), Kirin (2503 JP), Lixil (5938 JP), and Aeon (8267 JP)).  Also among the latter are two medical-related business - the now remained H.U. Group (4544 JP) (formerly Miraca) and recent Bain PE target Nichii Gakkan (9792 JP).In the DETAIL section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.

🇯🇵 Japan • Every Shareholder Left Behind - The Book Value Per Share Metric

FROM OPERATING TO FINANCING CASH FLOWS -  Having examined Operating Cash Flow in our previous <a href="https://www.smartkarma.com/insights/japan-stress-tests-part-2-operating-cash-flow-accruals" target="_blank" data-smartkarma-citation="insights:40321" rel="noopener">Insight</a>, we shall look into the 'stressors' between Operating Cash Flow and Financing Cash Flow. In our reformulated Cash Flow Statements, cash flows relating to operating activities are divided into Operating Cash Flows and Investing Cash Flows, which comprise Fixed Asset and Inventory Cash Flows.  Free Cash Flow is the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow. Inventories are not included in Operating Cash Flow as they are considered discretionary, are often related to Fixed asset Cash Flows, and can be highly seasonal.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/141/225/original/2020-06-21_08-34-07.png?1592698079" class="editor-image img-responsive" data-smartkarma-image-id="141225"></figure><div class="content-caption">Source: Japan Analytics</div>JAPAN WAS FCF POSITIVE IN Q4.. - Despite the decline in Operating Cash Flow in the last quarter (the final quarter of the Fiscal Year for most Japanese companies), Investing Cash Flow was more positive than in any quarter since FY2016-Q4, which also coincided with the last business cycle low. As a result, the aggregate Free Cash Flow for the 3,639 listed non-financial companies (excluding<a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener"> Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>, <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>) was an impressive ¥8.4 trillion or an annualised yield of 6.4%.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/141/223/original/2020-06-21_08-51-12.png?1592697088" class="editor-image img-responsive" data-smartkarma-image-id="141223"></figure><div class="content-caption">Source: Japan Analytics</div>..AS CAPEX WAS PUT ON HOLD - Seasonally Japanese companies capital expenditures are higher in the second half of the fiscal year- in FY2019, ¥21trillion was added to Operating Assets. In contrast, FY2020 saw a 79% decline in capex to ¥4.4 trillion, all of which was spent in the third quarter. This decline is the most substantial second-half quarter-on-quarter contraction in fixed asset outflows since 2009.   In the DETAIL below, we shall highlight those 'outlier' large-cap companies which are either end of the capex, inventory and Free Cash Flow tables, and focus on those with the greatest intimations of business 'stress'. We have excluded the Real Estate Sector from this analysis due to the inherent volatility of fixed assets and inventory cash flows fo these companies.

FROM OPERATING TO FINANCING CASH FLOWS -  Having examined Operating Cash Flow in our previous Insight, we shall look into the 'stressors' between Operating Cash Flow and Financing Cash Flow. In our reformulated Cash Flow Statements, cash flows relating to operating activities are divided into Operating Cash Flows and Investing Cash Flows, which comprise Fixed Asset and Inventory Cash Flows.  Free Cash Flow is the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow. Inventories are not included in Operating Cash Flow as they are considered discretionary, are often related to Fixed asset Cash Flows, and can be highly seasonal.Source: Japan AnalyticsJAPAN WAS FCF POSITIVE IN Q4.. - Despite the decline in Operating Cash Flow in the last quarter (the final quarter of the Fiscal Year for most Japanese companies), Investing Cash Flow was more positive than in any quarter since FY2016-Q4, which also coincided with the last business cycle low. As a result, the aggregate Free Cash Flow for the 3,639 listed non-financial companies (excluding Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)) was an impressive ¥8.4 trillion or an annualised yield of 6.4%.Source: Japan Analytics..AS CAPEX WAS PUT ON HOLD - Seasonally Japanese companies capital expenditures are higher in the second half of the fiscal year- in FY2019, ¥21trillion was added to Operating Assets. In contrast, FY2020 saw a 79% decline in capex to ¥4.4 trillion, all of which was spent in the third quarter. This decline is the most substantial second-half quarter-on-quarter contraction in fixed asset outflows since 2009.   In the DETAIL below, we shall highlight those 'outlier' large-cap companies which are either end of the capex, inventory and Free Cash Flow tables, and focus on those with the greatest intimations of business 'stress'. We have excluded the Real Estate Sector from this analysis due to the inherent volatility of fixed assets and inventory cash flows fo these companies.

🇯🇵 JAPAN - Stress Tests Part 3 - Inventory, Fixed Asset & Free Cash Flows

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/139/255/original/2020-06-11_08-36-54.png?1591832240" class="editor-image img-responsive" data-smartkarma-image-id="139255"></figure><div class="content-caption">Source: Japan Analytics</div>STRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-2-altman-z-score" target="_blank" data-smartkarma-citation="insights:37316" rel="noopener"> Swimming Naked?</a> Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)</a> which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries -  <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>, <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>- have been excluded from this analysis.

Source: Japan AnalyticsSTRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's Swimming Naked? Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with Nissan Motor (7201 JP) which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries -  Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)- have been excluded from this analysis. 

🇯🇵 JAPAN - Stress Tests Part 1 - Altman Z-Scores

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

The housewares company <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil Group (5938 JP)</a> was formed as we know it through the merger of Tostem (which made doors, windows, curtain wall (for high rises), sash, and shutters) with INAX which made porcelain and FRP toilets and sinks and plumbing fixtures) in 2001. That was renamed JS Group in 2004 and from then until just after the GFC JFC continued with bolt-on acquisitions (American Standard Asia Pacific (porcelain toilets), Sunwave (stainless steel sinks, etc for pro use), Shin Nikkei, Toyo Exterior, etc) then in 2011 merged them all together to form LIXIL Group. <a href="https://www.smartkarma.com/entities/lixil-viva" target="_blank" data-smartkarma-citation="entities:24060:1" rel="noopener">LIXIL VIVA (3564 JP)</a> started its life as a subsidiary of Toyo Sash which launched what in Japan is called a DIY store or a "home center" (something akin to a Home Depot), branded "Viva Home", in the late 1970s. It was early. In the 1980s it listed itself, and in the early 1990s, it rebranded itself Tostem Viva when Toyo Sash itself rebranded itself as Tostem. In 2001, it merged with Tostem and Inax to form Tostem Inax which, as above, became JS Group and then LIXIL Group. LIXIL IPOed LIXIL VIVA in April 2017, and climbed until TOPIX inclusion week at the end of May 2017, and then the shares fell for five months, falling well below the IPO price (¥2050/share). The shares rallied into the end of the fiscal year, regaining the IPO price for several weeks before falling 45% to the ¥1200/share area in summer 2019. The goal had been for LIXIL Group to cut LIXIL VIVA loose, because it was deemed something of a conflict of interest to have a home furnishings company owning a low-priced retailer of both its items (which might put its stores in competition with its distributor network) and competitors' items, however the appetite for a large offering was never deemed right, and eventually a private sale was looked at. The search for a buyer started in earnest several months ago, with reports suggesting the field had been winnowed down to a half dozen by March when markets started getting hairy - split between strategics and financial buyers. <h2>The NEW News Today</h2>Today, <a href="https://www.smartkarma.com/entities/arcland-sakamoto-co-ltd" target="_blank" data-smartkarma-citation="entities:10395:1" rel="noopener">Arcland Sakamoto (9842 JP)</a>, <a href="https://www.smartkarma.com/entities/lixil-viva" target="_blank" data-smartkarma-citation="entities:24060:1" rel="noopener">LIXIL VIVA (3564 JP)</a>, and <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil Group (5938 JP)</a> announced a multi-leg agreement where Arcland Sakamoto would launch a Tender Offer to take over enough shares in LIXIL Viva so that after the Tender Offer, Arcland and LIXIL Group would own enough to squeeze out minorities. Then Arcland will inject some capital into LIXIL Viva, enabling it to buy back shares from LIXIL Group so that Arcland will be the sole owner.There are a couple of specific reasons for doing it this way which only support an improved price for minorities, so the structure is not terribly objectionable, but the minimum threshold for tender success being only 12% out of the ~45% minority ownership is a part of Japanese tender offers on companies with large incumbent stake holdings which should be fixed at some point.<div class="content-remarks">(hint: if you investors don't demand the change to better defend minorities, companies won't volunteer it on their own). </div>This sales process hasn't exactly been conducted in secret, but even then, the premium vs the last week and month is pretty miserly. One could imagine some people getting upset. It is not clear people should be upset. It was well-signalled, it's a tough business, an auction was conducted with multiple participants, and while LIXIL Viva may be the largest and best example of how to run this business, they are not cheap.This should get done, but it may be interesting to watch.

The housewares company Lixil Group (5938 JP) was formed as we know it through the merger of Tostem (which made doors, windows, curtain wall (for high rises), sash, and shutters) with INAX which made porcelain and FRP toilets and sinks and plumbing fixtures) in 2001. That was renamed JS Group in 2004 and from then until just after the GFC JFC continued with bolt-on acquisitions (American Standard Asia Pacific (porcelain toilets), Sunwave (stainless steel sinks, etc for pro use), Shin Nikkei, Toyo Exterior, etc) then in 2011 merged them all together to form LIXIL Group. LIXIL VIVA (3564 JP) started its life as a subsidiary of Toyo Sash which launched what in Japan is called a DIY store or a "home center" (something akin to a Home Depot), branded "Viva Home", in the late 1970s. It was early. In the 1980s it listed itself, and in the early 1990s, it rebranded itself Tostem Viva when Toyo Sash itself rebranded itself as Tostem. In 2001, it merged with Tostem and Inax to form Tostem Inax which, as above, became JS Group and then LIXIL Group. LIXIL IPOed LIXIL VIVA in April 2017, and climbed until TOPIX inclusion week at the end of May 2017, and then the shares fell for five months, falling well below the IPO price (¥2050/share). The shares rallied into the end of the fiscal year, regaining the IPO price for several weeks before falling 45% to the ¥1200/share area in summer 2019. The goal had been for LIXIL Group to cut LIXIL VIVA loose, because it was deemed something of a conflict of interest to have a home furnishings company owning a low-priced retailer of both its items (which might put its stores in competition with its distributor network) and competitors' items, however the appetite for a large offering was never deemed right, and eventually a private sale was looked at. The search for a buyer started in earnest several months ago, with reports suggesting the field had been winnowed down to a half dozen by March when markets started getting hairy - split between strategics and financial buyers. The NEW News TodayToday, Arcland Sakamoto (9842 JP), LIXIL VIVA (3564 JP), and Lixil Group (5938 JP) announced a multi-leg agreement where Arcland Sakamoto would launch a Tender Offer to take over enough shares in LIXIL Viva so that after the Tender Offer, Arcland and LIXIL Group would own enough to squeeze out minorities. Then Arcland will inject some capital into LIXIL Viva, enabling it to buy back shares from LIXIL Group so that Arcland will be the sole owner.There are a couple of specific reasons for doing it this way which only support an improved price for minorities, so the structure is not terribly objectionable, but the minimum threshold for tender success being only 12% out of the ~45% minority ownership is a part of Japanese tender offers on companies with large incumbent stake holdings which should be fixed at some point.(hint: if you investors don't demand the change to better defend minorities, companies won't volunteer it on their own). This sales process hasn't exactly been conducted in secret, but even then, the premium vs the last week and month is pretty miserly. One could imagine some people getting upset. It is not clear people should be upset. It was well-signalled, it's a tough business, an auction was conducted with multiple participants, and while LIXIL Viva may be the largest and best example of how to run this business, they are not cheap.This should get done, but it may be interesting to watch. 

Lixil Viva (3564 JP) Takeout Tender Offer

Japan

LIXIL Group Corporation produces aluminum housing materials such as doors, windows,curtain walls, and screens.  The Company also sells interior materials and a variety of housing equipment.

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Lixil Group (5938 JP)

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Lixil Viva (3564 JP) Takeout Tender Offer

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