Photographer: Junko Kimura-Matsumoto/Bloomberg

Mitsubishi to Pay $1.4 Billion to Raise Lawson Stake to 50%

  • Trading house to turn Japanese convenience chain into unit
  • Mitsubishi has aimed to diversify from commodities businesses

Mitsubishi Corp. plans to raise its stake in Lawson Inc. in a 144 billion yen ($1.4 billion) tender offer and to turn Japan’s third-largest convenience store operator into a unit as part of a shift away from its mainstay commodities businesses.

The diversified trading company, Japan’s largest by market value, will offer 8,650 yen a share starting in January to increase its holding in Lawson to 50 percent from 33.4 percent stake, the companies said in statements Friday. The offer is 17 percent higher than Lawson’s closing share price Wednesday, before the prospect of a deal was reported. The stock fell 0.4 percent to 7,900 yen in Tokyo Friday.

The acquisition gives Mitsubishi a bigger slice of the retailer’s profit, which is expected to jump about 17 percent to 36.8 billion yen in the year ending February 2017, after two years of decline, according to analyst estimates. More support from Mitsubishi is a plus for Lawson’s expansion as well as its supply chain and distribution, said Makoto Sakurai, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co.

Lawson would support the tender offer, it said Friday in the statement.

“The takeover price looks fair,” Takashi Aoki, a fund manager at Mizuho Asset Management said by phone. Also, since Mitsubishi won’t start buying the shares until January, some investors would think there is an option value that should be positive for the shares, he said.

For analysis of Mitsubishi’s offer by Gadfly’s David Fickling, click here.

Japan’s biggest convenience store operators have been growing by buying up rivals in and outside the country, with Lawson saying in June it was looking to buy other chains in the U.S. Scale helps the shops increase supply-chain efficiency in Japan as well, where a declining population and stagnant economy leave cost cuts as one of the few paths to profit growth.

Relative Value

Mitsubishi intends to pay about 7.6 times earnings before interest, taxes, depreciation and amortization for the Lawson stake, including net debt, according to data compiled by Bloomberg. That compares with the 8.1 times that rival FamilyMart Co. paid for UNY Group Holdings Co. in a deal completed last month and the 2.7 times Uny Group Holdings Co. paid in 2012 for Circle K Sunkus Co.

Led by downturns in its energy and metals businesses, Mitsubishi reported a net loss of 149.4 billion yen last fiscal year. The company aims to diversify away from commodities over the next three years to assure that they don’t post another net loss, Chief Financial Officer Kazuyuki Masu said in an interview last month.

Mitsubishi rival Itochu Corp., a Tokyo-based energy to housing to food and textiles conglomerate, also owns about 33 percent of FamilyMart, which outgrew Lawson in terms of number of stores by acquiring UNY Group Holdings, operator of the Sunkus chain. FamilyMart had about 10,900 stores as of May 31, while UNY had 6,253.

Lawson, which operates about 12,600 stores in Japan and about 930 outside the country, is targeting an increase to 1,000 overseas shops by February 2017.

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