TOKYO : 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, 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 per cent stake.
Its holdings in Tsuruha and some other drugstore chains including Sundrug and Kusuri No Aoki Holdings account for more than 10 per cent 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 per cent 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.
Tsuruha will hold its annual general meeting on Aug 10.
($1 = 138.1500 yen)
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