U.S. News

Aeon, Daiei to Announce Capital Tie-Up

Japanese retailers Aeon and Daiei said Friday they will announce a capital tie-up, a move that would create the nation's largest retail group.

Last year, Aeon obtained exclusive negotiation rights for an alliance with supermarket chain Daiei, which has been trying to turn around its business after collapsing in 2004.

Japanese trading house Marubeni Corp., which has the largest stake in Daiei with 44.6%, will also be at the news conference scheduled for later in the day at a Tokyo hotel, the companies said.

Under last year's agreement, Aeon, Marubeni and Daiei had been talking about allowing Aeon to buy about a 15% stake in Daiei from Marubeni. The talks also covered Aeon's purchasing a 20 stake in Daiei group supermarket operator Maruetsu Inc. from Daiei.

Combined annual sales of Aeon, Daiei and Maruetsu would exceed 6 trillion yen ($51 billion), surpassing another giant Japanese retailer Seven & I Holdings Co. with annual sales at about 5.5 trillion yen ($47 billion).

Seven & I Holdings owns the 7-Eleven convenience store chain and Ito-Yokado supermarkets.

The Aeon-Daiei alliance will not only create sheer size in retail here _--the world's second largest retail market -- but will also garner support from a successful retail chain in turning around Daiei's troubled business.

Aeon has grown in recent years here by setting up Western-style shopping malls and offering discounts on a range of products, including electronics, clothing and food.

The acquisition of a part of Daiei by Aeon is ironic, as Daiei pioneered large-scale retailing in Japan, which had been dominated in the past by mom and pop stores.

The new alliance will be yet another obstacle for U.S. chain Wal-Mart Stores, the world's biggest retailer, which has been trying to expand its presence in Japan through subsidiary Seiyu Ltd.

Wal-Mart had also reportedly been interested in a partnership with Daiei. Seiyu is losing money, although Wal-Mart says its business is going in the right direction.

Daiei ran up huge debts as it rapidly expanded during Japan's boom of the 1980s. After the bubble burst, Daiei was left with debts of more than 2 trillion yen ($17 billion).

Despite two major bailouts, Daiei failed to stay afloat and went to the state-backed corporate rehabilitation body in 2004.