NEWS RELEASE

Jul 08, 2020

R&I View: to Delist FamilyMart Limited impact on the rating

Itochu Corp. (Sec. Code: 8001, Issuer Rating: AA-) announced on July 8 that it will acquire additional shares in its consolidated subsidiary FamilyMart Co., Ltd. (Sec. Code: 8028) through a tender offer and delist the company. The tender offer will commence on July 9, and the total acquisition price is expected to be approximately 580.9 billion yen. At present, Itochu holds 50.1% of the outstanding shares of FamilyMart. After a successful tender offer, Itochu plans to sell part of the shares so that FamilyMart will be owned approximately 94.7% by Itochu, 4.9% by National Federation of Agricultural Associations and The and approximately 0.4% by Century Corp. If the tender offer is successfully completed and organizational realignment is implemented, FamilyMart will be delisted. The tender offer includes a provision that the transaction will not close if the number of tendered shares is less than the minimum number of shares to be purchased (60% of the outstanding shares including the shares currently held by Itochu). Due partly to a decrease in capital surplus caused by the acquisition of additional subsidiary shares, Itochu's risk resilience will somewhat weaken, but R&I considers the rating impact to be limited. With a sound business portfolio consisting primarily of consumer-related businesses, Itochu maintains high profit and cash flow generating capacities. Moreover, it has not been affected by the novel coronavirus outbreak as seriously as other major trading companies. Even so, Itochu's risk-weighted assets are on the rise, and its financial profile does not have sufficient headroom. If Itochu undertakes another large investment going forward, its risk resilience may come under downward pressure. Since being converted from an equity method affiliate to a consolidated subsidiary in FY2018 (the year ended March 2019), FamilyMart (formerly FamilyMart Holdings Co., Ltd.) has increased its importance further as a pillar for growth areas. In FY2019, Itochu launched the "8th Company" and consolidated businesses related to FamilyMart into it, thereby establishing a structure that can address increasingly diverse consumer preferences and purchase channels. By delisting FamilyMart, Itochu will accelerate reinforcement of peripheral businesses. R&I will keep an eye on whether the additional investment in the business can help strengthen Itochu's earnings base.

Lead Rating Analyst: Shoko Ouchi

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