TOKYO -- The merger of FamilyMart, Japan's third-largest convenience store operator, and fourth-ranked Uny Group Holdings will create a third force to rival retail powers Seven & i Holdings and Aeon, but much work remains to get it into fighting shape.

     FamilyMart and Uny said Thursday they had reached a basic agreement to unite in September 2016. FamilyMart is to absorb its smaller partner, which operates Circle K Sunkus convenience stores, and form a new holding company. Trading house Itochu, which is FamilyMart's top shareholder and has a roughly 3% stake in Uny, is expected to own about 30% of the new retail group.

     The combined entity aims to reach 5 trillion yen ($42.2 billion) in revenue from stores, a 100 billion yen consolidated operating profit and return on equity of 12% within five years of the merger. As separate companies, FamilyMart and Uny expect to total 3.8 trillion yen in revenue from domestic stores including franchise shops in the year ending February, with consolidated operating profit of 67.9 billion yen.

     The merged group will muster about 18,000 convenience stores, surpassing second-ranked Lawson to tie Seven-Eleven Japan. A new giant will walk the Japanese retail industry. But many say it is too long in coming.

     Before adopting a holding company structure, Uny formed a partnership with Itochu in 2006. Three years later, the trading house became a shareholder. Joint product development yielded some benefits, yet their alliance never progressed further.

     FamilyMart proposed merging their convenience store operations back in 2007. Uny chose to stay independent, giving Seven and i space to take the lead. It also neglected to overhaul its underperforming general-merchandise stores.

     Eight years later, FamilyMart and Uny have finally decided to tie the knot. But that alone does not solve all their problems. It took them six weeks longer than planned to reach a basic merger agreement, partly because of trouble reconciling ideas for boosting general-store earnings. They apparently are still discussing closing as many as 50 of Uny's roughly 230 general stores. Uny President Norio Sako told reporters Wednesday that closures would be decided "on their individual merits," without mentioning specific locations.

     Discussions on adopting a single convenience store brand are ongoing, Sako said. Investors will be watching for whether the partners can devise more concrete plans by next September.

(Nikkei)