Daily BriefsJapan

Japan: Kansai Super Market, Demae-Can Co., Ltd., METRO AG and more

In today’s briefing:

  • The Kansai Super (9919) Conundrum
  • Demae-Can Placement – Massive Dilution to Pursue Market Share
  • Demae-Can’s Latest Offering Preserves The Potential for TOPIX Inclusion
  • Metro Cash and Carry to Exit Japan

The Kansai Super (9919) Conundrum

By Travis Lundy

On 31 August, Kansai Super Market (9919 JP) and its top shareholder (10.02% of shares out) H2 O Retailing (8242 JP) (the parent of Hanshin Department Store and related companies) announced a business merger whereby the H₂O would inject two supermarket businesses it owns – Izumiya and Hankyu Oasis – into a holding company with Kansai Super, receiving shares in a newly enlarged Kansai Super in exchange. 

H₂O would go from owning 10.66% to owning 58% of Kansai Super, and the 89.34% would own 42% of NEWCO. 

The merger was short-dated/accelerated, with the EGM to vote on this deal set for a Record Date on 15 September, the EGMs of all the related companies where an EGM was necessary (Kansai Super, Hankyu Oasis, and Izumiya (the latter two foregone conclusions because they are 100%-owned by H₂O) on 29 October, and the merger effective December 1st.

The shares popped a bit, then fell back. 

At first glance, this seemed somewhat opportunistic for H₂O, and it meant that the 89.34% “minority” in Kansai Super would become a real minority without getting paid a premium or provided a chance to exit. Based on the net assets of the companies, it seemed like H₂O was getting a good deal. Based on the OP levels in the past year, it did not seem like H₂O was getting special treatment. 

A couple of days later, on 3 September, privately-held discount (“every day low price”) supermarket chain OK Corp (primarily based in the Kanto area, but which had been aimed at expanding into the Kansai area), which was the second-largest single shareholder of Kansai Super (based originally in Osaka/Kansai) at 7.23%, stepped up and offered a press release which said that it would vote against the merger and if the merger were not approved, it would be willing to launch a Tender Offer to buy the shares of Kansai Super at ¥2,250/share (the highest price since listing and nearly vs ¥1,374/share the day before, and more than double the market price of Kansai Super in June when the proposal was made). On 3 Sep OK complained about their treatment, and noted that from the perspective of shareholder interest, their bid should be considered, but OK also had no intention of launching a hostile bid.

The shares popped, moving limit up. Then limit up another day, and then the shares traded at JPY 2,200/share in considerable volume before drifting lower.

Today the shares fell back 7+% to just below JPY 2,000/share. 

There is some very long history between the founder of OK and Yuji Kitano the founder of Kansai Super, and they once worked together, with OK seconding employees to Kansai Super to learn the business of fresh grocery sales. 

Mr Kitano passed away in 2013, and OK Supermarket started buying shares in 2016, getting to just under 5%, then it peaked its head above and by the end of the fiscal year in February, owned 7.23%. Of course, that year in October (2016), Kansai Super entered into a business and capital alliance with H₂O Retailing, and H₂O bought about 10% of the shares out. 

Fast forward five years and it turns out that OK approached Kansai Super in April 2021, and proposed a capital and business alliance on 9 June, in writing. Kansai Super put this to an Independent Committee which then took its time, setting its first meeting with OK some 11 weeks later on 26 August. The Kansai Super release (Japanese only) on 31 August suggests there was a “third party tender offer approach” but then doesn’t discuss it much while saying that intense discussions and due diligence was afforded to H₂O Retailing in the same timeframe.

Five days after the first interview with OK, Kansai Super and H₂O announced their deal. 

This is a complicated deal and it begs the question of whether shareholder interests matter and how shareholders decide. 

More discussion below. 

Demae-Can Placement – Massive Dilution to Pursue Market Share

By Zhen Zhou, Toh

Demae-Can Co., Ltd. (2484 JP)  is looking to raise up to a total of JPY80bn (US$730m) from a combination of overseas offering to investors and share sale to Z Holdings (4689 JP) and Naver Corp (035420 KS).

In this note, we will take a brief look at deal dynamics, fundamentals, and run the deal through our ECM framework.

Demae-Can’s Latest Offering Preserves The Potential for TOPIX Inclusion

By Janaghan Jeyakumar, CFA

Japan-based food delivery company Demae-Can Co., Ltd. (2484 JP) launched a follow-on equity offering after market-close today to raise capital for business expansion. 

In this offering the company will be issuing 55,436,400 new shares and selling 3,240,000 treasury shares out of which a total of 19,293,900 shares will be allocated to the public and 39,382,500 shares will be allocated for Z Holdings (4689 JP) and South-Korea based Naver Corp (035420 KS). Based on today’s closing price, the total size of this equity offering could be around ~¥105bn (US$950mn) and the portion allocated to public shareholders could be around ~¥35bn (US$315mn). However, the official announcement estimates the minimum size of the equity offering to be around ~¥80bn (US$726mn) and the above-mentioned allocation can change slightly depending on share price movement and public investor interest. 

There is a really interesting event angle here which should pique the interest of investors. 

More below.

Metro Cash and Carry to Exit Japan

By Michael Causton

METRO AG (MEO GR) will close its Japan operations at the end of October. It follows Carrefour SA (CA FP), Tesco PLC (TSCO LN) and Walmart (WMT US) as the latest major international player to try and fail in the Japanese market and leaves Costco as the only international chain retailer – but a clearly successful one at least. 

Before it’s here, it’s on Smartkarma