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Business deals

Japan drugstore chain Cocokara to pursue Matsumotokiyoshi merger

Seventh- and fifth-ranked players would leap to top with nearly $9.4bn sales

Drugstore operator Matsumotokiyoshi, which led Japan's market for 22 years before slipping to fifth, appears to have the inside track for a merger with rival Cocokara Fine.

TOKYO -- Japanese drugstore operator Cocokara Fine intends to pursue merger talks with rival Matsumotokiyoshi Holdings, Nikkei has learned, in a move that could create a new market leader with total sales of nearly 1 trillion yen ($9.4 billion).

Cocokara previously fielded an offer from another player, Sugi Holdings, but a committee established to explore a merger has backed Matsumotokiyoshi's proposal instead. Cocokara's board members have discussed the matter and also determined that the company would benefit more from synergies with Matsumotokiyoshi, according to sources.

The chains are looking to shore up their businesses in a market some consider saturated. The number of drugstores in Japan is estimated to have exceeded 20,000 in fiscal 2018. Cocokara's sales, meanwhile, declined that year, and the company has struggled so far in fiscal 2019, up to July.

Industry players appear to have recognized the limitations of their growth model, raising the potential for a broader shakeout.

Matsumotokiyoshi lost its market lead in fiscal 2016, after 22 years, and now ranks fifth. The chain has limited new store openings to focus more on profit, however, boosting its operating profitability to the highest level among major players, at 6.3%. That marks a 2.5-point improvement in 10 years.

In fiscal 2018, Matsumotokiyoshi's sales reached 575.9 billion yen, while the seventh-ranked Cocokara recorded 400.5 billion yen. Their combined sales of 976.4 billion yen would surpass the 782.4 billion yen generated by the top player, Tsuruha Holdings.

Cocokara and Matsumotokiyoshi announced back on April 26 that they would open discussions on a capital alliance. The next day, the sixth-ranked Sugi stepped in and sent a merger proposal to Cocokara, followed by an announcement that the two operators were launching talks.

Not to be outdone, Matsumotokiyoshi said on June 5 that a merger was also an option. Cocokara established a special committee of outside experts to judge the two competitors' proposals.

Cocokara itself was created in 2008 by a merger of Tokyo-area chain Seijo and Osaka-based Segami Medics. The company had 1,354 stores as of March under brands such as Cocokara Fine, Kusuri Seijo and Drug Segami.

Matsumotokiyoshi, on the other hand, was established in 1932 and counted 1,654 stores as of March, including Matsumotokiyoshi and Drug Papasu stores.

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