TOKYO -- Aeon, the Japanese retailer best known for the giant hypermarkets that bear its name, looks to acquire 100-yen chain Can Do to gain expertise in a segment of the market where it has struggled.
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 major train stations, and products often feature popular characters. The company raked in sales of 73 billion yen ($643 million) for the year ended November 2020.
The chain will give Aeon, which operates malls and general merchandise stores, a tool to develop a new income source. The company is seeing slower sales of clothing and home-related items during the pandemic and has been seeking to nurture new 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 lineup of affordable products. The 100-yen chain also will open locations within Aeon Group's 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, now expecting group net profit to decline on the year to 300 million yen -- about 160 million yen lower than an earlier projection.
Prices of raw materials such as plastics are climbing, while manufacturing costs in production hubs such as Southeast Asia and China are swelling due to economic growth. Labor costs at home are rising as well, due to hikes in the minimum wage. Soaring marine shipping rates have added pressure on profit margins. It is unclear what 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 Tokyo Stock Exchange's first section.
The first tender offer will be conducted from Friday through Nov. 24 for 2,700 yen a share -- a 45% premium over Can Do's closing price 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 "designed to ensure fairness in the stock market" in the words of a spokesperson, more shares than expected may be tendered, possibly causing 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 remain in his post after the company becomes a subsidiary of Aeon, which may send a few personnel to become Can Do directors.