Seven & I Holdings, Asia's biggest retailer by market value, said on Monday it will take over Japanese department store group Millennium Retailing in a deal worth up to €1.8 billion.
Seven & I, a holding company that includes the Ito-Yokado supermarket chain and Seven-Eleven Japan convenience stores, aims to become globally competitive through the deal, which will push it past Aeon Co and make it Asia's top retail group by sales.
The company, which also has the US-based 7-Eleven group under its umbrella, aims to jump-start its growth with department stores that have been benefiting from improvement in Japan's economy, while the outlook for general merchandise and convenience stores remains gloomy due to market saturation.
Seven & I's move also coincides with foreign rivals' attempts to gain further footholds in Japan's already crowded retail sector.
Competition in the industry intensified this month when Wal-Mart Stores, the world's largest retailer, took a controlling stake in Seiyu Ltd., the country's fourth-largest supermarket chain.
"As we value what each one of us have, we want to create a new model through our merger," Seven & I chairman Toshifumi Suzuki told a news conference.
Suzuki said he had high hopes for Millennium president Shigeaki Wada's skill in differentiating his company from other department stores, which he said was needed to win in a saturated retail market. Wada will become Seven & I's vice-president in May.
Seven & I said it would pay 131.1 billion yen (€951 million) in cash for a 65.45 per cent stake in privately held Millennium from Nomura Principal Finance, a unit of Nomura Holdings, in January.
It plans to acquire the remaining shares with cash or stock by next June to make Millennium, the parent company of Japan's Seibu and Sogo department stores, a wholly owned unit.
Nomura Principal, which bought the Millennium stake for 50 billion yen, said the sale would produce a profit of 81.1 billion yen, its biggest-ever profit from an investment.
Its parent, Nomura Holdings, does not provide earnings forecasts.
Analysts see the planned takeover as positive for Seven & I, and say it will not hurt the cash-rich company's financial health. But they were awaiting a detailed plan to see if its strategy of having multiple business formats would produce any significant synergies.
Seven & I, a holding company created last September, has lacked major department store operations.
"Judging from the acquisition price and possible synergies in the consumer finance business and others, we view this merger positively at this point," Toshio Takahashi, an analyst at Mizuho Securities, said in a report.
