KKR to buy stake in Japanese retailer Seiyu for $1.6bn

February 2021 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

February 2021 Issue

Walmart Inc has agreed to sell most of Japanese retailer Seiyu to private equity giant KKR & Co and Rakuten, Japan’s largest e-commerce company.

The deal will see KKR become Seiyu’s majority owner with a 65 percent stake, while Rakuten will take a 20 percent stake. Walmart will retain a 15 percent minority interest.

Upon completion, which is expected in the first quarter of 2021, conditional on regulatory approvals, Rakuten and KKR will seek to shore up Seiyu’s digital operations as demand for online retail grows in Japan amid the COVID-19 pandemic. According to a July report from the Japan Times, internet sales accounted for about 5 percent of total grocery sales in the country, compared to 2.5 percent before the pandemic.

The new owners are also retaining a previously announced plan to re-list Seiyu in the future. In June 2019, Walmart said it would seek to re-list Seiyu, following years of speculation that it was seeking to sell the chain after consistent poor performance. “An IPO is certainly a common goal for us,” said Eiji Yatagawa, a partner at KKR. “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.”

Lionel Desclee, chief executive of Seiyu, will continue to lead the business through a transition period, after which he will take on a new role within Walmart. A new board of directors comprised of representatives from KKR, Rakuten and Walmart will be formed to focus decision making locally. The company plans to appoint a new chief executive following completion of the transaction.

“This past year has been one of the most extraordinary in Seiyu’s rich 57-year history,” said Judith McKenna, president and chief executive of Walmart International. “Our associates have been exceptional, adapting brilliantly to serve customers at a time when they needed it most and outperforming against an ambitious transformation plan. We have been proud investors in this business over the past 18 years and we are excited about its future under the new ownership structure.

“Today’s announcement is important because its focus is on bringing together the right partners in the right structure to build the strongest possible local business,” she continued. “We look forward to supporting Seiyu’s growth and success, alongside KKR and Rakuten, as a minority investor.”

“KKR is pleased to invest in the success of Seiyu given the important role it plays in the lives of customers across the country,” said Hiro Hirano, co-head of Asia Pacific private equity and chief executive of Japan at KKR. “We are also excited by the prospect of working with Seiyu’s associates, who have dedicated themselves to supporting the business in spite of this year’s unprecedented challenges.

“We will focus on working closely with Seiyu’s management team and associates and leveraging the expertise of Rakuten and Walmart to enhance the customer experience, meet their ever-changing needs, and make shopping more accessible through digitalisation,” he continued. “This investment is a true milestone for KKR in Japan and reinforces our commitment to the market as well as our continuing efforts to champion the long-term success of local businesses.”

“By building on our successful partnership on Rakuten Seiyu Netsuper and our deep experience in online retail and data-based marketing, we look forward to accelerating digital transformation of Seiyu brick and mortar retail and further merging the best of offline and online retail to offer Seiyu customers the best possible OMO1 customer experience,” said Kazunori Takeda, group executive vice president and president of Rakuten.

“The planned establishment of Rakuten DX Solution will also allow us to offer digital solutions optimised to transform retail at Seiyu and in new future partnerships with retailers across Japan,” he added.

Walmart first invested in Seiyu in 2002 and took it private in 2008. It expects to recognise a non-cash loss of about $2bn after taxes in the fiscal fourth quarter of 2020 related to the deal, according to a regulatory filing, but “does not expect a significant impact to earnings per share following completion of the transaction”.

Richard Summerfield