Mitsukoshi, Isetan in merger talks

By Tak Kumakura, TOKYO, Bloomberg

Mitsukoshi Ltd. said it’s in takeover talks with Isetan Co. to form Japan’s largest department-store chain after sales in the industry slumped for a ninth year. “The companies are in talks, but details such as the merger ratio or who will be president haven’t been finalized,” Mitsukoshi spokesman Yasuhiro Tanaka said Friday. Mitsukoshi has a market value of 285 billion yen (US$2.5 billion), about a third less than Isetan’s. The combination would help the retailers compete in a department store market where sales have fallen 16 percent since 1997 as Japan’s population shrinks and spending habits change. Mitsukoshi, after six straight years of declining revenue, would follow Matsuzakaya Holdings Co. in joining with a bigger rival. “A merger would benefit Mitsukoshi,” Shinya Torihama, an analyst with Okasan Securities Co., said Friday. “Mitsukoshi is not as good at merchandise selection as Isetan so Mitsukoshi can acquire Isetan’s marketing know-how.” Nobukazu Muto, president of Isetan will become chairman, with Mitsukoshi President Kunio Ishizuka becoming president, the Nikkei newspaper said on its English language news service. Both companies will hold extraordinary board meetings as early as next week to approve the merger, the report said, without saying where it obtained the information. “We are confounded by that report,” Isetan spokesman Koji Kawanobe said. “We totally deny” it, he said.

The merger would create a company with annual sales of US$14 billion and make it one of the top ten department store operators worldwide. That compares with revenue of US$53 billion for Sears Holdings Corp., the largest U.S. operator. Shares in both companies were halted after a separate Nikkei report said Isetan may allocate 0.3 of its stock for each share of Mitsukoshi. Mitsukoshi shares rose 4 yen, or 0.7 percent, to 554 yen at 2:02 p.m. in Tokyo. Isetan shares rose 6 yen, or 0.3 percent, to 1,789 yen. The stocks will resume trading next week.

Mitsukoshi, which was founded in 1673 as a kimono store, is being advised by Daiwa Securities SMBC. An alliance with another retailer should be regarded as an opportunity for revival, Mitsukoshi’s Ishizuka said in May.

“If a partnership is expected to help improve Mitsukoshi’s brand value, we will examine such a possibility,” he was quoted as saying by Nikkei English News.