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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"In the long term, I'm not sure if the IRCJ has the ability to revitalize Daiei. It's too big and too complicated."¹

- Naoko Nemoto, Bank Analyst, Standard and Poor, in October 2004.

"The state-led rescue should allow for the swift revitalization and rebalancing of the still debt-ridden balance sheet of Daiei. By the spring of next year, we can start to focus on operational revitalization of Daiei."²

- Jesper Koll, Chief Economist, Merrill Lynch Japan, in October 2004.

Heading For Rehabilitation

After several months of efforts, the Industrial Revitalization Corporation of Japan (IRCJ)³, finally, in March 2005, selected a consortium led by trading house Marubeni Corporation (Marubeni)⁴ to rehabilitate The Daiei Incorporated (Daiei), Japan's troubled supermarket chain operator. Marubeni had teamed up with the investment firm Advantage Partners Inc.⁵ Daiei had once been one of Japan's largest retailers, but in course of its expansion drives during the 1980s and early 1990s, it had amassed huge debts. Despite its efforts, the company was unable to decrease its debt burden significantly.

IRCJ then stepped in October 2004. It drew up a rehabilitation plan for Daiei, inviting bids from various investor groups.

Many Japanese and foreign investors exhibited an interest, but IRCJ finally zeroed down to three groups for final consideration.

The three groups of investors were the ones led by Japanese supermarket chain operator Aeon Corporation⁶, trading house Marubeni, and investment fund Kiacon Corporation.⁷After reviewing the rehabilitation plans submitted by these three contenders, IRCJ chose Marubeni because it had closer ties with Daiei, having developed products jointly with it in the past.

IRCJ decided to invest 50 billion yen⁸ in Daiei's shares to acquire a 33.4 percent equity stake along with a third of voting rights. It aimed to change Daiei from a supermarket chain selling a wide range of merchandise to the one centered on food products.

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1] Soble, Jonathan, "Japan's Daiei seeks state-backed restructuring," www.investors.reuters.
com, October 13, 2004.

2] "UFJ Seeks Daiei Bidders after Retailer Turns to State (Updated)," www.quote.bloomberg.
com, October 14, 2004.

3] The IRCJ was established jointly by the public and private sector on April 16, 2003, with the aim of providing revitalization assistance beneficial to both the industrial and the financial sectors in Japan. It targets assistance at companies that have sound business fundamentals but are unable to thrive because of excessive debt levels or other factors.

4] Marubeni Corporation is Japan's fifth largest trading house involved in importing and exporting a range of products.

5] Advantage Partners Incorporated is a Tokyo based private equity firm.

6] Aeon Corporation is Japan's biggest retailer.

7] Kiacon Corporation is Tokyo-based turnaround specialist.

8] As on March 23, 2005, 1 US Dollar = 105.60 Japanese Yen.