In addition, Simon Property Group Inc. has reached a deal to buy rival mall owner Taubman Centers Inc. at a lower price than the companies agreed to in February, avoiding a courtroom battle over the failed deal.

(Bloomberg)—Walmart Inc., No. 3 in the 2020 Digital Commerce 360 Top 1000, is selling most of Japanese retailer Seiyu to KKR & Co. and Rakuten Inc. in a deal that values the supermarket chain at 172.5 billion yen ($1.6 billion), as the U.S. giant retreats from its two-decade attempt to crack Japan’s retail market.

Under the agreement, private equity fund KKR will become the majority owner with a 65% stake, while Japanese e-commerce giant Rakuten takes 20%, the companies said in a statement Monday. Walmart will retain a 15% minority interest. Rakuten and KKR will seek to shore up Seiyu’s digital operations as demand for online retail grows in Japan amid the pandemic. The new owners are retaining a previously announced plan to re-list Seiyu in the future.

“An IPO is certainly common goal for us,” Eiji Yatagawa, a partner at KKR, told Bloomberg News. “What’s important is to build a business that can go public. For a company to go public, you need to demonstrate a very attractive story to the market.”

In June last year, Walmart said it would seek to relist Seiyu, following years of speculation that it was seeking to sell the chain after years of poor performance. While a 2018 report in the Nikkei newspaper said the Bentonville, Arkansas-based retailer planned to sell the business for as much as 500 billion yen, the company had repeatedly denied it was looking to exit. The price paid by KKR and Rakuten for the stakes was not disclosed.

Walmart expects to recognize a non-cash loss of about $2 billion after taxes in the fiscal fourth quarter related to the deal, according to a regulatory filing. The company “does not expect a significant impact to earnings per share following completion of the transaction.”Walmart first invested in Seiyu in 2002 and took it private in 2008. But like other foreign retail giants, including Tesco Plc and France’s Carrefour SA, it failed to find success in Japan’s notoriously difficult and low-margin supermarket space, and struggled to compete with local rivals such as Aeon Co. and Seven & i Holdings Co.

advertisement

In 2018, it began working with Rakuten on fresh produce delivery in Japan as well an e-book operation in the U.S. The U.S. giant has been reshaping its international operations to focus on high-potential markets like India and China, and investing to build its digital operations globally as it faces cost pressures and sluggish growth in its home market.

Fresh produce is a 60 trillion yen market in Japan, but only around 3-4% of that is online sales, according to Noriaki Komori, a Rakuten executive officer, creating a growth opportunity. Books and home appliance see about a third of sales online, he said. The pandemic has boosted ecommerce in Japan, where adoption has sometimes lagged other markets, with online clothes shopping and food delivery seeing notable gains.

The pandemic has also been boosting domestic Japanese dealmaking in the second half of the year following a downturn at the start of the outbreak, a surge that private equity firms including KKR as well as Carlyle Group Inc. have been seeking to get involved in. Carlyle in March raised 258 billion yen ($2.5 billion) for its fourth Japan buyout fund, while KKR has been increasing its involvement in the country, declaring Japan in 2019 to be among the most interesting buyout opportunities in the world. The heads of its Japan operations told Jiji in September that it aimed to do one or two deals totalling 300 billion to 700 billion yen a year.

The combination of online retailerRakuten runs Japan’s largest online shopping mallwith traditional brick-and-mortar store has echoes of Amazon.com Inc.’s $13.4 billion purchase of Whole Foods Market in 2017. Whole Foods has struggled during the pandemic, however, with foot traffic down an estimated 25%. Amazon’s Japan arm already runs a grocery delivery service with Life Corp., a supermarket chain.

“The world is very different today than it was 18 months ago for all of us,” said Judith McKenna, president of Walmart’s international business. “The world has accelerated in omnichannel and digital transformation in the course of this year, not just in Japan but around the globe.”

advertisement

The deal is expected to close in the first quarter of 2021. Seiyu CEO Lionel Desclee will stay in his role through the transaction and then take a new position within Walmart. A new CEO will then be appointed by a new board comprised of managers from the three owners. Rakuten is No. 10 in the ranking of Digital Commerce 360 Top 100 Online Marketplaces.

Simon Property, Taubman Settle Takeover Spat With Price Cut

Simon Property Group Inc. has reached a deal to buy rival mall owner Taubman Centers Inc. at a lower price than the companies agreed to in February, avoiding a courtroom battle over the failed deal.

The companies agreed to a modified buyout that had Simon pay $43 in cash for each Taubman Centers share, down from the original offer of $52.20 a share for Taubman made just before the coronavirus began sweeping across the U.S.

Under the terms of the revised deal, Taubman won’t declare or pay a dividend on its common stock prior to March 1, 2021, and then, only subject to certain limitations and conditions. The companies have also settled their pending litigation, according to a joint statement Sunday.

The settlement was announced just hours before a trial over the imploded buyout was slated to start in state court in Michigan. Judge James Alexander in Pontiac, Michigan would decide whether Taubman could force Simon to consummate the acquisition or whether the Indianapolis-based mall operator had proper grounds to pull the plug on the deal.

advertisement

In June, Simon walked away from its initial $3.6 billion offer for Taubman and sought in court to have the transaction terminated. Many analysts speculated the move was a negotiating tactic to get a better price for the deal.

Simon argued it had legitimate grounds to scrap the buyout because Taubman’s revenue suffered a “material adverse effect” and the company didn’t take proper steps to mitigate damage from the pandemic. Bloomfield Hills, Michigan-based Taubman countersued, saying its rival was legally obligated to complete the transaction and that it had taken some of the same steps as Simon to address the fallout from Covid-19.

The deal is now expected to close in late 2020 or early 2021.

At the end of a pre-trial hearing Friday, Alexander hinted settlement talks between the parties were heating up. “See you Monday unless things happen over the weekend,” the judge told lawyers for both companies.

The settlement joins a number of recent accords struck over deals whose value was hammered by the fallout from the COVID-19 outbreak in the U.S. Last month, Tiffany & Co. agreed to drop its suit seeking to force LVMH to fulfill promises to acquire the jeweler after the French handbag maker agreed to a $425 million price cut, valuing the new deal at about $16 billion. LVMH cited concerns about the coronavirus’ effect on Tiffany’s business for trying to cancel the acquisition.

advertisement

Comtech Telecommunications Corp. and Gilat Satellite Networks agreed last month to call off their $532 million merger just before a trial over Comtech’s claims Gilat’s business suffered a “material adverse change” due to the virus. Comtechthe would-be buyeragreed to pay Gilat $70 million in a settlement of claims over the failed deal.

The Simon case was Simon Property Group Inc. v. Taubman Centers Inc., No. 2020-181675-CB, Michigan Circuit Court, Oakland County (Pontiac).

Favorite