Japanese giant Aeon in deal talks with Indian retailers

Two Indian grocery retail chains, which rely on the franchisee route to operate neighbourhood convenience stores, are understood to have opened stake sale negotiations with Aeon Co, the Japanese retailing and financial services behemoth, which reported revenues of $60 billion last year.

Aeon Co is a diversified conglomerate and operates in various retail segments ranging from supermarkets, convenience stores, department stores, small supermarkets, discount stores and drug stores, besides financial services. The company is focused on Asia, with operations spanning China, Vietnam, South Korea, Indonesia, Thailand, Taiwan, the Philippines and Malaysia, besides Japan. The company operates a liaison office in India.

It is understood that $110-120 million will be the enterprise value of one of the Indian retailing chains when the transaction goes through. Aeon, however, said it was researching potential markets in various Asian regions but did not have any plan to begin a retail business in India.

The news about Aeon being tapped by Indian retailers comes after similar conversations were held with the Hong Kong-based retailer A S Watson, part of the Hutchison Whampoa Group.

“Indian retailing chains, which have the option of divesting stake in the back end, are engaged with Aeon for a stake sale,” investment bankers in the know told Business Standard. Though foreign direct investment in multi-brand retailing is yet to fructify, various Indian retailers are readying to strengthen their back-end operations by roping in global retailing majors.

Aeon’s expertise in developing a private label range of products will be one of the key levers the two Indian retail chains will be banking on. Aeon’s private label, TopValu, for various products has been core to its growth across Asian markets. Many Indian retailers, too, have been building their presence in private label goods, as that gives them better margins.

While this route of investing in the back end, such as in the supply chain of an Indian retailer, is available to global retailers, many global majors such as Metro and Walmart have been building cash-and-carry operations.