Daily Brief Japan: Sumitomo Precision Products, Seven & I Holdings, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Sumitomo Precision Products (6355) Buyout by Sumitomo Corp – Likely To Get Done
Selling Sogo Seibu Doesn’t Mean Seven & I Will Sell Ito-Yokado
Conflicts of Interest Prevent TSE from Resolving Prime Market Listing Criteria Issues

Sumitomo Precision Products (6355) Buyout by Sumitomo Corp – Likely To Get Done

On Friday, Sumitomo Corp (8053 JP) announced a bid for equity affiliate (they own 27+% but Nippon Steel 15%, top 2 is 40+%) Sumitomo Precision Products (6355 JP).
It’s a one-year high and 4-year high price, and 8x average 10yr EV/EBITDA but 4.6x 2024e EBITDA from the Mid Term Plan. And way below a 10-year high.
This gets done if Retail agrees to the tender. If 50% put in, that should do it. So I expect this gets done.

Seven & I has at last agreed to sell the ailing Sogo Seibu chain – although not for enough to offset years of investment with little to show for it.
Some hope that this means the start of a house cleaning exercise to rid the group of its multiple under-performing retail assets, leaving a gleaming exemplar of rational efficiency.
This is unlikely, especially for the original Ito-Yokado general merchandise chain and a problem given the lack of growth potential in the group’s domestic business.

For companies applying transitional measures, it was an opportunity to attract investor attention and consider what is listing. This should serve as an opportunity to promote metabolism of listed companies.
Listing fees are set at the highest rates for prime market, so if the number of prime market companies decreases, TSE revenues will decrease. A conflict of interest has arisen.
With such a conflict of interest at TSE, it is unlikely that the contradiction between the prime market concept and listing criteria that many market participants perceive can be resolved.

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