January 31, 2020 / 4:29 AM / 19 days ago

Japan drugstore MatsumotoKiyoshi to buy 20% of rival, aims for full merger next year

TOKYO (Reuters) - Japanese drugstore firm MatsumotoKiyoshi Holdings (3088.T) said it would buy 20% of rival Cocokara Fine Inc (3098.T) for roughly $350 million and aim for a full merger next year, becoming the leader in a sector grappling with fierce price competition and rising labor costs.

MatsumotoKiyoshi will pay 6,460 yen per Cocokara Fine share or 38.4 billion yen for the 20% stake, most of which will be newly issued, the companies said in a statement.

That is much less than Cocokara Fine’s closing price of 6,750 yen on Friday. The stock had risen 4.5% on the day after the Nikkei business daily reported a deal was imminent.

With combined annual revenue of over 1 trillion yen ($9 billion) this year, the move would see them overtake current market leaders Tsuruha Holdings (3391.T) and Welcia Holdings (3141.T).

The companies said their combined scale of roughly 3,000 shops will help with logistics costs and give them greater leverage in purchasing supplies.

They are aiming for a full merger in October 2021, with terms to be decided in February that year.

Popularly known as “Matsukiyo”, MatsumotoKiyoshi started as a mom-and-pop pharmacy in the 1930s. The chain pioneered discount cosmetics and became popular for a casual format which encouraged customers to sample products. They also expanded into new areas such as food and liquor.

But other pharmacy chains have followed and analysts say the discount drugstore market appears saturated. Like the rest of Japan’s retail sector, the firms are grappling with a dwindling workforce and sluggish consumer spending.

Cocokara Fine also said the rise of e-commerce had forced it to look for a partner.

“In this macro environment, the drugstore sector faces increased competition, rising personnel and transportation costs, and the industry’s growth is slowing,” it said in a statement.

Reporting by Ritsuko Ando; Editing by Edwina Gibbs

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