Japanese stores plan marriage of convenience

An ultra-competitive and saturated market has prompted two of Japan’s biggest convenience store chains, FamilyMart and Circle K, to initiate a merger they hope will rival market leader Seven-Eleven.

The two umbrella companies, UNY Group Holdings Co Ltd and FamilyMart Co Ltd, said in a joint statement they are exploring ways in which to make substantial savings and pool resources in order to increase growth in the domestic market.

Current top ranked chain Seven-Eleven will still be out-and-out market leader, even after the proposed tie-up, with revenue of 3.8 trillion yen compared to the possible 2.8 trillion yen that the new merged entity will produce.

The statement said preliminary talks had taken place but did not go into any detail regarding specifics of the agreement or whether anything had been finalised.

The markets reacted with a 2 percent drop in FamilyMart shares. The smaller of the two companies, UNY, saw a 9 percent jump in its share price.

A regional newspaper reported that the potential merger would be mediated by CITC Tokyo International, a prominent Japanese trading house and a minority stakeholder in FamilyMart.

The deal is seen by many analysts to be most beneficial to UNY. Hiromitsu Kamata, chief of the domestic assets department at Amundi Japan said, “UNY has been having a torrid time in the last few years and the merger could be a catalyst to halt dropping sales revenue and profits in its stores and boost growth”.

Conversely, the tie-up could have a negative effect on FamilyMart as it could be pulled down into UNY’s sales issues. A source close to the matter, who preferred to remain anonymous, said that UNY forecasts its operating profits will drop 14 percent for its annualized figures ending last month. That’s a fourth consecutive year of dropping figures.

The supermarket and convenience sector has been highly competitive in the last decade and most of the leading lights in the industry have looked to streamline their operations, especially with regards to distribution and purchasing.

Second largest Japanese convenience chain Lawson have also been making waves, and recent rumours have it they are planning a move for upmarket chain Seijo Ishii Co. although the takeover has yet to be completed.

China set to become global railroad player

Beijing has completed the merger of two of its state-owned railroad equipment manufacturers to create China’s version of General Electric, and establish the world’s second biggest industrial firm.

The new entity is thought to be worth a staggering $140 billion and involves the combination of China CNR Corp. and CSR Corp. into a new entity to be named CRRC Corp.

The tie-up will give the communist nation a platform to compete on equal footing with some of the biggest players in the rail equipment sector, and effectively challenge for large-scale foreign contracts.

Shares in the new company have already gained 5 percent after a frantic opening in Hong Kong on Monday and rose by the maximum 10 percent on the Shanghai stock exchange.

China also has political motives to up-scale their manufacturing, as they look to project their influence into emerging nations by becoming intimately involved with their infrastructure projects. Construction in regions such as South East Asia, Africa and South America have traditionally been dominated by established European companies like France’s Alstom SA and Germany’s Siemens AG but CRRC will now dwarf its closest competitors, and with public relations being handled by Premier Li Keqiang himself there will be plenty of interesting bidding battles to come.

“The rail equipment sector used to be a competition between a fairly wide variety of mid-sized companies from Asia, Europe and the States, from now on its going to be China versus the world,” said HSBS Asia head of strategies Alexious Lee. “China’s main advantage is its low costs. It can pass these savings onto the buyers. They will need to improve their quality however. Another major bonus for potential buyers is that the equipment will come as part of a package which includes corporate financing and maintenance”.

Most analysts agree its great timing for a major move into the rail business. Canada’s Bombardier Inc. recently announced they were in talks to offload their rail manufacturing operations, with rumours circulating of a Chinese buyer, and Italy’s FinmeccanicaSpA are considering whether to persist with a signalling business that has been running at a loss for 2-years. According to investment firm CITIC Tokyo International, Japan’s Hitachi Ltd. are interested in buying the business for around $400 million.

After Monday’s action on the stock market, trading in CNR and CSR was suspended pending completion of the tie-up, as the Shanghai Composite Index jumped a total of 19 percent.