On October 29, Kansai Super Market held an extraordinary general shareholders meeting and passed the proposal for management integration with its largest shareholder, H2O Retailing. Kansai Super Market will be reorganized as a subsidiary of the intermediate holding company, Kansai Food Market, together with H2O-affiliated Izumiya and Hankyu Oasis. Resultantly, H2O’s food business will suddenly become a 400 billion yen business and play a central role in the structural reform as the main business of the Group in both name and reality.

The outcome of the resolution could not be predicted until the end. On August 31, Kansai Supermarket announced that it would become a member of the H2O group through a share exchange. Four days later, OK Corporation, the third-largest shareholder, which operates price-appealing supermarkets in the Tokyo metropolitan area, also expressed its intention to acquire Kansai Super Market. The stock price offered by OK was 2,250 yen per share, which is the highest price recorded in 1992 since Kansai Supermarket’s listing and high enough to show OK’s “serious” intention. It required a two-thirds vote to pass. The situation has become delicate – A U.S. voting advisory firm was recommending against the proposal, and the ITOCHU-SHOKUHIN, the fourth-largest shareholder, disclosed a questionnaire saying there were not enough reasons to consider. The result was 66.68% in favor, being barely passed.

From a perspective of shareholders, OK’s high profitability and potential of business growth in the market of the Kansai region are attractive. In addition, the synergy with Mitsubishi Corporation, a major shareholder, and the company in which the current president of OK worked before, is not small. For Mitsubishi that owns Life, a food supermarket, and Seijo Ishii, Lawson’s affiliated company operating luxury supermarkets, Kansai Super Market’s business shift to the format of OK makes sense in terms of both its business area and business type to build better business portfolios. On the other hand, for H2O, which aims to break away from its dependence on department stores and develop the company to a “communication retailer” targeting the 10 million people in the Kansai region, it is essential to strengthen its food business to connect itself directly with consumers. From a perspective of H2O’s strategy, the latter is also correct.

On May 7, six months before this battle, H2O has signed a comprehensive business alliance with Lawson and has started changing the brand of the station kiosks and convenience stores from Asnas to Lawson. Besides the conflict over Kansai Super Market, a strategic business alliance with Mitsubishi Corporation group is also underway. OK also did not carry out a hostile takeover bid with Kansai Super Market.

In the first place, consumers do not care about increasing shareholder value or the dominance strategy of the parent company. What most matters is whether or not the companies could offer optimum benefits to consumers depending on each of the diversifying consumer preferences and the increasingly sophisticated purchasing behavior, and it was obvious that the takeover battle was not an option to realize the consumers’ benefits. Accordingly, this battle was not the goal to achieve these benefits. It may be in the not too distant future when a larger scale of the structural reform involving the entire industry or even across industries is undergone.

This Week’s Focus, November 5

Takashi Mizukoshi, the President