Mitsubishi Corporation

Press Room

February 18, 2011
Mitsubishi Corporation
RYOSHOKU LIMITED
Meidi-ya Corporation
San-Esu Inc.
Food Service Network Co., Ltd.

Mitsubishi Corporation to Integrate Food Intermediary Distribution Subsidiaries

On 29 July 2010, Mitsubishi Corporation (MC) and four of its subsidiary companies RYOSHOKU LIMITED (RYOSHOKU), Meidi-ya Corporation (Meidi-ya), San-Esu Inc. (San-Esu) and Food Service Network Co., Ltd. (FSN) resolved to begin discussions toward their management integration. Following discussions in the Integration Preparatory Committee consisting of members appointed from each company, Mitsubishi Corporation is today announcing the following decisions taken regarding this integrated management.
 
1.         Purpose of Integrated Management
The environment surrounding the Japanese domestic food market is changing and diversifying as a result of factors such as: Japan’s uncertain economic situation moving forward; gradual population decline; low birthrate and an ageing population; continuing deflation; and a trend of conservative consumption. Amidst such circumstances intermediary distribution businesses are also under pressure to make changes in terms of their role and function.
 
Against this backdrop, in order to respond to the needs of customers in a timely and accurate fashion, MC’s four food intermediary distribution subsidiaries are aiming to establish a single entity, combining their management resources, developing into a leading global player and evolving their existing business models. At the same time, this integration is seen to be the best possible option for all stakeholders, including all shareholders and employees, and will enable the companies to improve their capacity to offer sustainable corporate value.
 
Specifically, the objectives of this integration are to realize the following:
 
1) Achieve top level business across widespread categories including, ambient food processing, alcoholic beverages, confectionary, frozen foods, chilled foods and pet food. Combine the strengths and functions of each of the 4 companies in question and offer enhanced services to our customers.
 
2) Optimize distribution through improved procedures at distribution bases; unifying key information systems, as well as rationalizing and optimizing business processes. This will enable low cost operations and the expansion of soft services such as marketing and will also strengthen relationships with customers.
 
3) With regard to growth markets in China and Asia, demonstrate supply chain management (SCM) functions – something which distribution companies are particularly well-placed to do – to support the overseas development of our customers and proliferation of Japanese food culture overseas.
 
4) Ensure the food safety that is essential to daily life and contribute to society through developing the infrastructure needed for reliable supply of food and supporting the realization of good eating habits.  
 
2. Outline of Management Integration
 
(1) Integration Method
While the ultimate target of this management integration is to have one company which is a fusion in equal parts of all four companies, as a first step on July 1 2011, through share exchange (the “Share Exchange”), San-Esu, FSN and Meidi-ya will temporarily become subsidiaries of RYOSHOKU. After that, first Meidi-ya on October 1, 2011, and then San-Esu and FSN on April 1, 2012, will each merge with RYOSHOKU. The reasoning behind this staggered process is as follows:
 
1) Disperse and abate any burdens associated with the integration process; to minimize any risk; to take the surest measures during the integration and ensure the continuation and improvement of the level of service offered to customers. 
 
2) Achieve results through the synergies that exist between Meidi-ya and RYOSHOKU and their overlapping businesses as early as possible. Ensuring a smooth transition of dealings with customers by launching this new system in a timely fashion.
 
3) Establish San-Esu and FSN as a consolidated group at an early stage, before the actual merger has taken place. Together they can strengthen their relationship and develop common management ideals.
 
※The effective date of the Share Exchange may be altered depending upon the changes in circumstances and subject to agreement by the parties.
 
 (2) Schedule for Management Integration
 
Board of directors’ meeting for approval of the Share Exchange (RYOSHOKU, Meidi-ya, San-Esu, FSN)
Friday, February 18, 2011
 
Execution of the Share Exchange Agreement (RYOSHOKU, Meiji-ya, San-Esu, FSN)
Friday, February 18, 2011
Meeting of shareholders for approval of the Share Exchange Agreement (Meidi-ya)
Wednesday, March 30, 2011 (tentative)
Meeting of shareholders for approval of the Share Exchange Agreement (San-Esu)
Monday, March 28, 2011 (tentative)
Meeting of shareholders for approval of the Share Exchange Agreement (FSN)
Tuesday, March 29, 2011 (tentative)
Share Exchange effective date
 
Friday, July 1, 2011 (tentative)
Effective date of the merger between RYOSHOKU and Meidi-ya
Saturday, October 1, 2011 (tentative)
Effective date of the merger between RYOSHOKU, San-Esu and FSN
Sunday, April 1, 2012 (tentative)
 
 
(Note 1)   Pursuant to the provisions of Article 796, paragraph 3 of the Companies Act of Japan, RYOSHOKU will conduct the Share Exchange through the simplified-form share exchange procedure (Kan-i Kabushiki Kokan) without obtaining approval at a shareholders’ meeting.
 
(Note 2)      The effective dates of the Share Exchange, the merger between RYOSHOKU and Meidi-ya, and the merger between RYOSHOKU, San-Esu and FSN may be subject to change upon the agreement of the parties involved.
 
(Note 3)       With regard to RYOSHOKU Group companies, as of July 1, 2011, 100% owned subsidiary RYOSHOKU Liquor Limited will merge with RYOSHOKU. Further details regarding this were released today by RYOSHOKU. Please refer to the release entitled “Merger with consolidated subsidiary” for further details.
 
(Note 4)       RYOSHOKU’s 100% consolidated subsidiaries, and its confectionary business RYOKA Japan Limited will merge with RYOSHOKU as of April 1 2011. Once details are finalized they will be disclosed in a timely fashion.
 
(3) Details of Share Allotment
 
Company Name
RYOSHOKU
Meidi-ya
San-Esu
FSN
(Fully controlling parent company)
(Wholly-owned subsidiary)
(Wholly-owned subsidiary)
(Wholly-owned subsidiary)
Share Exchange Ratio
1
8.058
0.165
107.439
Number of shares to be delivered upon the Share Exchange
Common shares: 14,166,840 (tentative)
 
 (Note 1) Share allotment ratio
8.058 shares of RYOSHOKU will be allotted and delivered in exchange for each share of Meidi-ya; 0.165 of RYOSHOKU shares will be allotted and delivered for each share of San-Esu; 107.439 of RYOSHOKU shares will be allotted and delivered for each share of FSN. The terms and conditions of this share exchange ratio may be modified as a result of agreements between the parties.
 
(Note 2) Number of shares to be allotted upon the Share Exchange
Upon execution of the Share Exchange, at the time immediately preceding RYOSHOKU’s acquisition of all shares of Meidi-ya, San-Esu and FSN through the Share Exchange (the “Base Time”) RYOSHOKU shall deliver its shares to Meidi-ya, San-Esu and FSN shareholders in exchange for their respective shareholdings. The number of RYOSHOKU shares received will be calculated by multiplying the total number of Meidi-ya shares held by 8.058, the number of San-Esu shres held by 0.165, and the number of FSN shares held by 107.439. All of the shares delivered by RYOSHOKU as part of the Share Exchange are to be newly issued shares.
 
(Note 3) Treatment of shares consisting less than a full trading unit (tangen miman kabushiki)
Shareholders who hold shares of RYOSHOKU constituting less than one full trading unit (i.e. less than 100 shares) as a result of the Share Exchange will be entitled to use the following systems. Shareholders holding less than a full trading unit are unable to trade such shares on the stock exchanges.
①       Further purchase RYOSHOKU shares (kaimashi) (purchase of shares to reach a full trading unit)
Pursuant to the provisions of article 194-1 of the Companies Act of Japan, the holders of shares constituting less than a full trading unit may purchase from RYOSHOKU the number of shares that will achieve a total of one unit.
②       Request RYOSHOKU to purchase shares (kaitori) (sale of shares not amounting to a full trading unit)
Pursuant to the provisions of article 192-1 of the Companies Act of Japan, the holders of shares constituting less than a full trading unit may request RYOSHOKU to purchase back their shares.
 
(Note 4) Treatment of a fraction of a share
Pursuant to the provisions of Article 234 of the Companies Act of Japan and other relevant laws and regulations, with respect to shareholders of Meidi-ya, San-Esu or FSN who receive a fraction of one RYOSHOKU share in the Share Exchange, RYOSHOKU will pay to such shareholder an amount in cash in proportion to the fraction of a RYOSHOKU share.
 
(4) Treatment of share options and bonds with share options in relation to the Share Exchange
Not applicable.
                                                                                                         
3. Basis for Calculation of the Allotment Concerning the Share Exchange
 
 (1) Basis of Calculation
In order to ensure the fairness and the appropriateness of the share allotment ratio described in 2.(3) “Allotment in the Share Exchange” above (the “Share Exchange Ratio”), RYOSHOKU, MC, Meidi-ya, San-Esu and FSN each decided to request third-party financial advisors independent of all parties to conduct valuation. As such RYOSHOKU has engaged Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS) a third-party financial advisor while MC, Meidi-ya, San-Esu and FSN have engaged Ernst & Young Transaction Advisory Services Co., Ltd. (EYTAS).
 
For the purposes of its valuation, MUMSS considered the results of its discounted cash flow analysis (DCF analysis) and comparable companies analysis with respect to each of RYOSHOKU, Meidi-ya, San-Esu and FSN. In addition, MUMSS conducted dilution/accretion analysis of RYOSHOKU earnings per share, while, as RYOSHOKU is listed on the Tokyo Stock Exchange and therefore there is market price for its shares, MUMSS also conducted a market price analysis for reference purposes.
 
The following is a summary of the results of MUMSS’ valuation with respect to the Share Exchange.
(The figures show ranges of relative values where the share value per share of RYOSHOKU is 1)
 
Assessment Method
Calculated range of share exchange ratio
Meidi-ya
San-Esu
FSN
DCF Analysis
5.780 ~ 15.159
0.124 ~ 0.188
97.624 ~ 150.469
Comparable company analysis
1.920 ~ 14.249
0.141 ~ 0.215
109.107 ~ 167.292
 
 
For the purposes of the valuation, MUMSS has relied on information provided by RYOSHOKU, Meidi-ya, San-Esu and FSN as well as publically available information and assumed that such information is complete and accurate and did not conduct any independent investigation as to the completeness or accuracy of such information. Furthermore, the assets and liabilities of RYOSHOKU, Meidi-ya, San-Esu and FSN and their affiliates (including hidden assets/liabilities or contingent liabilities) have not been independently evaluated nor any third party appraisal or assessment has been furnished. With respect to the  information regarding the financial projections of RYOSHOKU, Meidi-ya, San-Esu and FSN, MUMSS has assumed that it has been reasonably prepared on bases reflecting the best currently available estimates and judgments of each company’s management. MUMSS’ valuation reflects the aforementioned information up until February 17, 2011.
 
As described in 3.(4) “Measures to Ensure Fairness” below, at the request of the Board of Directors of RYOSHOKU, MUMSS submitted a written opinion (fairness opinion) on February 17, 2011, stating that, based on and subject to certain assumptions stated therein, the Share Exchange Ratio is fair, from a financial point of view, to the holders of RYOSHOKU shares (other than MC and any other “controlling shareholder and other persons specified by the Enforcement Rules" as used in Article 441-2 of the Securities Listing Regulations and Article 436-3 of the Enforcement Rules of the Securities Listing Regulations of Tokyo Stock Exchange, Inc. (collectively, "MC and its Affiliates")).
 
EYTAS adopted the market price analysis in valuing the RYOSHOKU shares, as RYOSHOKU is listed on the Tokyo Stock Exchange, with sufficient liquidity and ordinary historical share price movement supportive of adopting this approach. Furthermore, in order to reflect cash flow expectations from future business operations, a DCF analysis was adopted. In addition, a comparable company analysis was also undertaken as a reference valuation.
 
Given that Meidi-ya, San-Esu and FSN are not listed and have no observable market price, a DCF analysis was adopted for the valuation, with a view to reflecting cash flow expectations from future business operations. A comparative company analysis was also undertaken as a reference valuation.
 
The following is a summary of the results of EYTAS’ valuation with respect to the Share Exchange.
(The figures show ranges of relative values where the share value per share of RYOSHOKU is 1)
 
 
Fully controlling parent company upon the Share Exchange
Wholly-owned subsidiaries upon the Share Exchange
RYOSHOKU
Meidi-ya
San-Esu
FSN
1
2.922~9.241
0.103~0.205
74.957~150.233
 
With regard to the valuation of RYOSHOKU based on the market price analysis, EYTAS adopted a valuation date of February 17, 2011 and applied the respective average closing share price of RYOSHOKU taken at intervals of 1 week, 2 weeks, 3 weeks, 1 month, 2 months and 3 months prior to the valuation date. Furthermore, valuations based on the DCF analysis of RYOSHOKU, Meidi-ya, San-Esu and FSN were calculated based on the business plans represented to have been reasonably prepared based on the best currently available estimations and judgments of each company’s management.
 
For the purposes of the valuation, EYTAS has relied on information provided by RYOSHOKU, Meidi-ya, San-Esu and FSN, as well as publically available information and assumed that such information is complete and accurate, and did not conduct any independent investigation as to the completeness or accuracy of such information. Furthermore, the assets and liabilities of RYOSHOKU, Meidi-ya, San-Esu and FSN and their affiliates (including hidden assets/liabilities or contingent liabilities) have not been independently evaluated nor any third party appraisal or assessment has been furnished. The Share Exchange Ratio calculated by EYTAS reflects information and economic conditions up until February 17, 2011.
 
The results of the Share Exchange Ratio valuation conducted by EYTAS do not constitute a fairness opinion with respect to the Share Exchange Ratio. 
In addition, the business plan prepared by Meidi-ya which formed the basis for the DCF approach undertaken  by MUMSS and EYTAS, includes periods which anticipate a substantial increase in profits arising from planned cost reduction initiatives.
 
(2) Process of Calculation
 Mitsubishi Corporation, RYOSHOKU, Meidi-ya, San-Esu and FSN have referred to and carefully reviewed the calculation results of the Share Exchange Ratio submitted by their respective third-party valuation institutions, and continuously negotiated and discussed with each other taking into consideration each company’s financial affairs, business performance, and stock price trends. As a result it was decided that the Share Exchange Ratio is proper and fulfills the interests of the companies’ respective shareholders. Therefore based on the resolutions of the Board of Directors meetings of each company the Share Exchange Ratio was agreed. 
 
(3) Relationship with Valuation Institutions
MUMMS, which is the third party financial advisor of RYOSHOKU, and EYTAS, which is the third party valuation institution for Mitsubishi Corporation, Meidi-ya, San-Esu and FSN are both independent from, and not related parties of MC, RYOSHOKU, Meidi-ya, San-Esu and FSN, and do not have any material interest to be noted in connection with the Share Exchange.
 
(4) Measures to ensure fairness
Since MC currently owns 50.00% of the number of issued shares of RYOSHOKU, 80.00% of the number of issued shares of Meidi-ya, 91.92% of the number of issued shares of San-Esu and 100.00% of the number of issued shares of FSN, and since MC is the controlling shareholder of RYOSHOKU and Meidi-ya, San-Esu and FSN are subsidiaries of MC, RYOSHOKU requested MUMSS to act as a third-party financial advisor and to conduct valuation in order to ensure the fairness of the share exchange ratio in the Share Exchange.  Referring to the results of the valuation, RYOSHOKU negotiated and consulted with MC, Meidi-ya, San-Esu and FSN, and resolved to implement the Share Exchange based on the Share Exchange Rratio at the Board of Directors meeting held today.
RYOSHOKU received the written opinion (fairness opinion) dated February 17, 2011, from MUMSS, stating that the Share Exchange Ratio is fair from a financial point of view to RYOSHOKU’s shareholders (other than MC and its Affiliates).
 
On the other hand MC, Meidi-ya, San-Esu and FSN, in implementing the Share Exchange, requested EYTAS, acting as a third party valuation institution, to calculate the Share Exchange Ratio in order to ensure the fairness of the Share Exchange Ratio in the Share Exchange. Referring to these calculation results MC, Meiji-ya, San-Esu and FSN negotiated and consulted with RYOSHOKU, and resolved to implement the Share Exchange based on the share exchange ratio at the Board of Directors meeting held today.
RYOSHOKU selected Nagashima, Ohno & Tokomatsu Law Offices as its legal advisor. MC, Meidi-ya, San-Esu and FSN selected Mori, Hamada and Matsuo Law offices as its legal advisor. Each received legal advice on the appropriate methods, processes etc for the Share Exchange.
 
(5) Measures to Avoid Conflicts of Interest
In light of the above mentioned valuation report and written opinion (fairness opinion) provided by MUMSS, RYOSHOKU carefully reviewed the terms and conditions regarding the Share Exchange at the Board of Directors’ meeting held today (6 out of 7 directors, and 3 out of 4 corporate auditors were present). The resolution to execute the Share Exchange Agreement was passed unanimously by all directors participating in the meeting. Furthermore attending corporate auditors voiced the opinion that this resolution did not represent any violation of duty of care or fiduciary duty.
 
Among RYOSHOKU’s 7 company directors, Mr. Kazuyasu Misu, an outside director, also serves as an employee of Mitsubishi Corporation and as a director of Meidi-ya and FSN. Therefore in order to prevent conflicts of interest, he has not participated in any deliberations or resolutions regarding the Share Exchange held by the Board of Directors of RYOSHOKU, nor has he participated in any negotiations or discussions with MC, Meidi-ya, San-Esu and FSN on behalf of RYOSHKU.
In addition, among RYOSHOKU’s 4 corporate auditors, Mr. Ryouichi Uchida, an outside corporate auditor, also serves as an employee of Mitsubishi Corporation and as a director of Meidi-ya. Therefore in order to prevent conflicts of interest, and from the point of view of maintaining a sense of impartiality and neutrality in the decision-making process, he has not participated in any deliberations or resolutions regarding the Share Exchange Agreement or the Share Exchange Ratio held by the Board of Directors of RYOSHOKU.
 
 
4. Overview of the Parties Involved in the Share Exchange
Fully controlling parent company
(1)
Company name
RYOSHOKU LIMITED
(2)
Headquarters
6-1-1, Heiwajima, Ota-ku, Tokyo, Japan
(3)
Representative
Chairman: Masaharu Goto
President & C.E.O: Kanji Nakano
(4)
Business  
Food Wholesaler
(5)
Capital
10.63 billion yen
(6)
Established
March 13, 1925
(7)
Number of shares outstanding
43,958,650 shares
(8)
Fiscal year-end
End of March
(9)
Number of employees
4,516(consolidated)(as of end of December, 2009)
(10)
Major customers
Lawson, Inc., AEON retail Co., Ltd., etc
(11)
Primary lending banks
The Bank of Tokyo-Mitsubishi UFJ, Ltd., Mitsubishi UFJ Trust and Banking Corporation
(12)
Major shareholders and shareholdings
(as of December 31,2009)
Mitsubishi Corporation       50.00%
Nichirei Corporation            2.17%
Japan Trustee Services Bank, Ltd. (trust account)
                                                              1.84%
Nippon Suisan Kaisha, Ltd.            1.83%
Ajinomoto Co., Inc.                            1.81%
Nissin Foods Holdings Co., Ltd     1.81%
Maruha Nichiro Holdings, Inc.       1.55%
Kirin Brewery Company Limited     1.54%
Suntory Beer & Spirits Limited        1.52%
House Foods Corporation               1.36%
(13)
Relationship between the parties
 
 
Capital relationship
No capital relationship between the parties
 
 
 
Personnel relationship
Kazuyasu Misu as an outside director of RYOSHOKU serves as an outside director of Meidi-ya. Ryoichi Uchida as an outside auditor of RYOSHOKU serves as an outside auditor of Meidi-ya.
 
Transaction relationship
RYOSHOKU conducts sales and purchase transactions with Meidi-ya, San-Esu and FSN
 
 
Status as a related party
RYOSHOKU, Meidi-ya, San-Esu and FSN are MC’s consolidated subsidiaries and therefore Meidi-ya, San-Esu and FSN are related parties of RYOSHOKU
(14)
Financial results and financial conditions for the recent three fiscal years (consolidated)
Fiscal year ended
December 2007
December 2008
December 2009
 
Net assets
72,354
72,064
75,640
 
Total assets
441,245
426,426
426,291
 
Net asset per share(yen)
1,634.48
1,646.29
1,728.62
 
Net sales
1,399,346
1,402,308
1,384,750
 
Operating profit
6,093
7,452
10,383
 
Ordinary income
6,888
8,276
11,052
 
Net income
2,681
3,525
4,741
 
Net income per share(yen)
62.02
81.75
110.31
 
Annual dividend per share(yen)
22.00
22.00
30.00
(Note 1) In millions of yen, unless otherwise specified 
(Note 1) In millions of yen
 
5. Status after the Management IntegrationJuly 1, 2011tentative))
 
 
 
(1)Company name
To be confirmed
(2)Headquarters
6-1-1, Heiwajima, Ota-ku, Tokyo, Japan
(3)Representative
Chairman          Kanji Nakano
President & C.E.O    Takeshi Inoue
(4)Business
Food Wholesaler
(5)Capital
10.63 billion yen
(6)Fiscal year-end
End of March
(7)Net assets
To be confirmed
(8)Total assets
To be confirmed
 
 
6. Outline of Accounting Treatment
With respect to RYOSHOKU, the Share Exchange and the planned merger to follow, is expected to be treated as a common control transaction, and goodwill is not expected to arise
 
7. Future Outlook
The impact of the Share Exchange on the earnings release of RYOSHOKU for March 2011 is expected to be minor. In addition, since RYOSHOKU, Meidi-ya, San-Esu and FSN are already subsidiaries of MC, the impact of the Share Exchange on MC’s operating results is expected to be minor.
RYOSHOKU’s earnings forecast and group-wide midterm management plan following the Share Exchange are currently being finalized and will be released in a timely fashion upon settlement.
 
8. Matters regarding Transaction, etc. with Controlling Shareholders
Since MC is the Controlling Shareholder of RYOSHOKU, Meidi-ya, San-Esu and FSN, the Share Exchange constitutes a transaction etc. with the Controlling Shareholder conducted by RYOSHOKU. The compliance of the Share Exchange with the description in ‘Measures for Protection of Minority Shareholders in Conducting Transactions with the Controlling Shareholders” presented in the Corporate Governance Report disclosed by RYOSHOKU on March 31, 2010 (the Corporate Governance Report) is as follows:-
While consulting with its parent company and its group companies on certain matters, RYOSHOKU autonomously promotes its business development with a certain level of independence from its parent company. Any transaction with the Controlling Shareholder or any of its affiliates is conducted under the same standards as transactions with other companies that do not have a controlling interest.
In addition, on February 17, 2011, the Board of Directors of RYOSHOKU received from MUMSS, a third-party financial advisor independent of RYOSHOKU, MC, Meidi-ya, San-Esu and FSN, a written opinion (fairness opinion) stating that the Share Exchange Ratio is fair from a financial point of view to the holders of RYOSHOKU shares (other than MC and its Affiliates).
 
As described in 3.(4)”Measures to Ensure Fairness” and 3.(6)”Measures to Avoid Conflicts of Interest” above, RYOSHOKU has taken certain measures to ensure the fairness of share exchange rate in the Share Exchange and to avoid conflicts of interest, and believes that such measures conform to the descriptions in the Corporate Governance Report.
 
Furthermore, the statement concerning “Measures for Protection of Minority Shareholders in Conducting Transactions with the Controlling Shareholders” presented in the Corporate Governance Report disclosed by RYOSHOKU on March 31, 2010 (the Corporate Governance Report) is as follows:-
“The Company plays a key roll in food distribution sectors as a core business unit of MC’s Living Essential Group by sharing information and services and working together with other group companies. Furthermore, The Company has a vision to set and manage the best distribution system independently, sharing functions and rolls with MC. The company supplies the function of food intermediary distribution at the mid-stream of food distribution channels, while MC supplies the function of a “sogo shosha” at the up-stream level of food distribution channels. The terms and conditions for transactions with its parent company are fixed properly by the negotiation based on market value to avoid any damage to minority shareholders.”
 
 

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