Rehabilitating Daiei - A Japanese Retailer in Trouble
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Case Details:
Case Code : BSTR161
Case Length : 15 Pages
Period : 1996 - 2005
Organization : Daiei Inc.
Pub Date : 2005
Teaching Note :Not Available
Countries : Japan
Industry : Retailing
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Exhibits
The Crisis
By early 2000, Daiei had emerged as the largest retailer in Japan; it had grown so rapidly because of its aggressive expansion policies mainly supported by borrowings from banks. However, with deflation in the Japanese economy, Daiei's debts snowballed.
The company went bankrupt in the fiscal 2001-02, reporting a net loss of 332.51
billion yen and a negative equity of 297.4 billion yen. The total current
liabilities for the company that year had grown to 2.22 trillion yen (Refer
Exhibit II for the liabilities and shareholders' equity of Daiei for 2002-04
period) with 90% of it either in the form of short term borrowings or long term
debt due within a couple of years...
The Restructuring Efforts
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On January 18, 2002, Daiei announced its three-year management restructuring
plan with the intention of pushing down its consolidated interest bearing debts
to under one trillion yen by the end of February 2005. Its three major creditor
banks promised to provide financial support of 420 billion yen through a
debt-for-equity deal.
The deal included swapping of some of Daiei's debts for shares and writing off
some loans. Besides this, Daiei intended to retire 50% of issued shares and
reduce the number of its subsidiaries from about 150 to less than 100. The
company also planned to lay off 6,000 of its full-time permanent employees out
of a total of 32,000...
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The Aftermath
IRCJ had earned a reputation for imposing strict turnaround plans on debtor
firms, and the path for Daiei was also expected to be quite demanding. The
agency was planning to shut down its unprofitable stores. IRCJ further
planned to allow Daiei to open about 100 food supermarkets over the next
five years under its rehabilitation program.
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The
agency's plans were based on the performance of Daiei's food supermarket
operations, which were relatively better than its other businesses. IRCJ
was also considering general merchandise store operations and credit
card business as among Daiei's core businesses in the future (Refer
Exhibit III for the merchandise mix of Daiei during the period
1999-2004)...
Exhibits
Exhibit I: Daiei's Financial Performance - Six Year
Summary
Exhibit II: Liabilities and Shareholders' Equity
Exhibit III: Six Year Summary of Merchandize Mix
Exhibit IV: Outline of Revitalization Plan for Daiei
Exhibit V: Details of Financial Assistance |
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