Daily Japan: Softbank – A Sizeable and Tactical Tender? and more

In this briefing:

1. Softbank – A Sizeable and Tactical Tender?
2. Onward Quits Zozo: Another Dent in Zozo’s Reputation
3. Debt Ratios Do Matter
4. Workman Vs. Decathlon: The Upcoming Battle for Japan’s Sports Market
5. Mitsui Fudosan Logistics Park Placement – Accretive and Well-Flagged

1. Softbank – A Sizeable and Tactical Tender?

Post the close of market, Softbank Group (9984 JP) announced a $750mn USD tender offer through an unmodified Dutch auction to purchase a portion of its outstanding USD and EUR senior notes. This could be an interesting deal from a timing perspective and could portend action for the equity – more details below.

2. Onward Quits Zozo: Another Dent in Zozo’s Reputation

ZOZO (3092 JP) has been hit from all sides recently, with a major sell-off by investors disturbed by Zozo’s execution of its private brand launch and the resulting impact on the company’s reputation among merchants and consumers alike.

Last month it launched a new campaign which, on the surface, was all about helping customers give back to society, but which drew an immediate negative response from some merchants.

One of these, Onward Holdings, withdrew all its brands from sale on Zozo. This is another damaging dent in Zozo’s reputation. 

3. Debt Ratios Do Matter

Monetary diarrhoea has inflated the debt structure.

The death of the Bretton Woods monetary system in 1971 paved the way for unbridled money printing. The resulting Great Inflation inflicted huge negative real returns on bondholders and stockholders until 1982. Thereafter, many countries, especially EMs, linked their exchange rates to the dollar, resulting in the fastest ever-growth in global foreign exchange reserves. In addition, central bank puts and then extraordinary fiscal and monetary policies turned it into the most virulent asset bubble in history, despite monetary mayhem, exemplified by numerous banking crises and three big stock market drawdowns. 

4. Workman Vs. Decathlon: The Upcoming Battle for Japan’s Sports Market

Decathlon is a category killer sans pareil and will finally open its first store in Japan in March. If Decathlon implements its store roll out well, the French sports retailer will cause a major disruption in Japan’s sports market.

Large domestic sports retailers like Xebio Holdings (8281 JP) and Alpen Co Ltd (3028 JP) will be gearing up to compete in some categories but are far behind in private label development and cost performance, and the major sports brands will have to accelerate their plans for retail stores while reviewing pricing (downwards). Sports firms like Mizuno (8022 JP), with relatively low perceived brand value, could face challenges in the newly polarised market that will emerge from Decathlon’s entry.

A major source of competition for Decathlon will come from a more unlikely retailer: the uniforms to outdoor apparel/gear firm, Workman (7564 JP). While still small, Workman is already manoeuvring to hinder Decathlon’s growth in Japan, and looks like having establishment backing to do so – and echoes the growth of Uniqlo after Gap entered the Japanese market in the 1990s and the rise and rise of Nitori (9843 JP) after IKEA’s launch in 2006.

Both Gap and IKEA have relatively small operations in Japan today compared to their early potential. Decathlon will need to expand rapidly if it is to gain sufficient share to stop Workman emerging with a clear lead in its market. 

5. Mitsui Fudosan Logistics Park Placement – Accretive and Well-Flagged

Mitsui Fudosan Logistics Park Inc (3471 JP) is looking to raise about US$289m in its placement to funds the acquisition of properties.

The deal scores well on our framework owing to strong price momentum and lower leverage relative to peers. Even though the REIT has a short history (listed since 2016), it has shown a decent track record of creating shareholder value. The acquisition of the properties has also been well-flagged in the company’s September presentation.