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Japan’s Aeon enters Malaysia in a big way [02-11-2012]  
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In a move that surprised market watchers, Japan's largest retailer Aeon Co Ltd will swallow Carrefour's Malaysian operations on its own without the involvement of its locally-listed entities Aeon Co (M) Bhd (Aeon Malaysia) and Aeon Credit Service (M) Bhd.

The deal thus has no financial impact on Aeon Co's Malaysian subsidiaries as they will be run separately from the newly-acquired Carrefour Malaysia, said Aeon Co chief executive officer for Asean Nagahisa Oyama, but it is expected to produce synergies in aspects such as information technology (IT), distribution network and product development.

France-based Carrefour SA agreed on Wednesday to sell its Malaysian business to Aeon Co for an enterprise value of 250 million euros (RM990.19mil), cementing the Japanese supermarket firm's Asean ambitions and ending months of speculation about a disposal, which it had repeatedly denied.

Following the merger, Carrefour Malaysia will be rebranded as Aeon Big (M) Sdn Bhd, a franchise Aeon Co already owns in Japan, within the next six months.

Aeon Co will fund this with its cash in hand. The deal is not expected to materially impact the company's financials.

Post-acquisition, Aeon will emerge as the second largest retailer here by sales from third place previously with 55 outlets and 122 billion yen in revenue.

Oyama also said there would be no staff cuts.

“Whenever we conduct mergers and acquisitions, the thing we are most careful about is to maintain the motivation of the employees.

“Today (Thursday) I will be sending a message to all employees of Carrefour Malaysia which expresses our intention to retain all of them, that they are assured of their continued employment, and this notice will be posted at the entrance of all stores.

“The message will be: Let's work together so we can make our stores even better',” he said, adding that Aeon would also maintain the relationships Carrefour Malaysia has with its suppliers.

“We will craft a new business plan as soon as possible for the new stores and we do not rule out closing the non-performing ones. The thing we will be doing immediately is to study each store and its performance. We may also, if necessary, pump money into them.”

On whether Aeon Co had secured the approval of the minority shareholders of Carrefour Malaysia, Oyama said: “That has been sorted.”

Carrefour had failed to exit the country in 2010 when its then-bumiputra shareholder, Tan Sri Aziz Shamsuddin, with a 30% stake, won an injunction from the High Court that prevented the company from buying him out.

It was reported a year later that the Court of Appeal had overturned the injunction.

Aeon Big will retain its identity as a hypermarket chain, distinguishing its customer base from Aeon Malaysia's.

Asked if he was daunted by the huge losses at Carrefour Malaysia, Oyama said: “I believe it can be turned around. Part of the reason for the poor performance was that they did not invest properly.

“We will establish a growth strategy for the next three to five years and will act quickly. We have full confidence that they will become excellent stores.”

Carrefour Malaysia, which has 26 outlets, saw its revenue dip 2% last year to RM1.7bil while its net loss plunged to RM81mil from RM2.9mil in 2010 due to rising overheads.

Its former parent, Europe's No.1 grocer and the second largest in the world behind Walmart, has been trying to hive off its non-core and unprofitable operations for several years.

Aeon Co on the other hand has sought a push into under-served markets in China and Asean in a bid to expand outside its crowded home base.

The group established yesterday its Asean base in KL, making Malaysia its third regional hub after Beijing and Chiba, Japan.

Oyama explained that Aeon plans to open its first store in Vietnam, Indonesia and Cambodia by 2014 and has set aside 30 billion yen for this purpose.

Meanwhile, analysts told StarBiz that any cannibalisation between Aeon Big and Aeon Malaysia would be minimal as the two operate in different segments, with the latter seen as catering to the lower to middle-income bracket while Aeon Malaysia's customers are more affluent.

RHB Research Institute analyst Lee Wee Sieng said the merger could result in operational synergies for both retailers in terms of the supply chain, although some overlap is expected in locations where both Carrefour and Aeon share close proximity, for instance in Midvalley Megamall.

Another analyst with a local brokerage said she believed Aeon Co has the chops to execute a successful acquisition despite it being a foreign party as it had the talent pool and is known to be a perfectionist.

“It was not an impulsive move. Besides, Aeon Co can always fall back on Aeon Malaysia should it encounter problems such as cultural differences,” she pointed out.

As for the retail landscape, she said competition is set to heighten for the bigger hypermarket players including Tesco, Giant and Mydin.

Source:THE STAR
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