In ageing Japan, investor Orbis sees big growth potential for drugstores (updated)
18/07/2023 11:15
(Adds share price infomation)
By Makiko Yamazaki and Ritsuko Shimizu
TOKYO, July 18 (Reuters) - The prospect of more
consolidation among Japan's fragmented drugstore industry is
likely to boost the longer term value of major players, the
Japan chief of Orbis Investment Management said.
The comments from Orbis' Tsukasa Tokikuni show how the $63
billion industry has become increasingly attractive to
investors, even as Japan's population shrinks and store rollouts
slow down.
"The Japanese drugstore market is still fragmented with
various players compared to the U.S. and UK," Tokikuni told
Reuters in an interview. "Further market consolidation would
help them expand sales and cut costs through synergies."
Market expectations for more mergers in the sector have
grown since Hong Kong-based activist investor Oasis Management
launched a campaign against Tsuruha Holdings 3391.T , calling
for a board reshuffle at one of the largest chains.
Bermuda-based Orbis, with $33 billion in assets under
management, has invested in the Japanese drugstore sector for
more than two decades including Tsuruha, where it now has a
5.6% stake.
Its holdings in Tsuruha and some other drugstore chains
including Sundrug 9989.T and Kusuri No Aoki Holdings 3549.T
account for more than 10% of Orbis' 400 billion yen ($2.9
billion) Japan portfolio, according to Tokikuni.
He pointed out that Tsuruha, which has grown through
multiple acquisitions, is particularly in a position to benefit
from possible consolidation because its track record of
successful mergers makes the company seen as a feasible suitor.
He declined to comment on Oasis' argument that the Tsuruha
board is dominated by the founding families, lacks independence
and needs an overhaul.
Oasis, which owns 12.8% of Tsuruha, has said it "believes
this sub-optimal governance structure ... could impede Tsuruha
from fairly evaluating consolidation opportunities crucial for
the company's growth."
"We think that consolidation in the sector is happening and
they should be a leader of that," Seth Fischer, founder of
Oasis, told reporters on Tuesday.
Tsuruha has denied any issues with governance and opposed
Oasis' proposals. "Having carried out mergers and acquisitions
in the past, we see ourselves as a leader in industry
consolidation and there's no change in our policy," the company
said in a statement.
So far this year, shares of Tsuruha have returned 8%,
including dividends, underperforming a 20% return by the broad
TOPIX index. Over the last three years, Tsuruha shares have
returned a negative 21%, underperforming a 53% rise in the TOPIX
index, when dividends are factored in.
Tsuruha will hold its annual general meeting on Aug. 10.
($1 = 138.1500 yen)
(Reporting by Makiko Yamazaki and Ritsuko Shimizu
Editing by Tomasz Janowski)
((Makiko.Yamazaki@thomsonreuters.com; +81-3-4563-2805;))