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Head of state-backed fund: Blocking 7-11 deal on security grounds will hurt Japan's reputation

Head of state-backed fund: Blocking 7-11 deal on security grounds will hurt Japan's reputation

The head of a government funded fund warned that Japan would risk damaging its reputation if it refused to accept a foreign bid worth $47 billion for Seven & i Holdings, a retailer. This was based on the grounds of economic security. Keisuke Yokoo, the head of Japan Investment Company (JIC), said in an interview that his fund is also focused on improving JSR's performance after it bought out JSR last year for $6 billion.

JIC was not involved in the Seven & i transaction, but Yokoo’s comments demonstrate that Japan’s business establishment may not be as protectionist as is often portrayed. His comments also highlight the wider stakes for the fourth-largest country in the world after Canada's Alimentation Couche-Tard announced its bid to buy the 7-Eleven owners in August. In the United States where President Donald Trump launched a trade war by imposing a series tariffs, protectionism has been on the rise. Japan, however, has increased efforts in recent years to attract more foreign investment.

Seven & i has not been warm to Circle K's owner Couche-Tard. Some politicians cited concerns about economic security over the possible acquisition, raising a possibility that Tokyo would take a protective stance in order to keep the beloved convenience stores in the hands of domestic owners.

Yokoo said in an interview with Reuters on Friday that it would be bad for Japan's reputation if the government intervened and blocked the bid. He said that it was difficult to understand how retailing is related to economic security.

Seven & i, a convenience store chain, was classified in September as "core" for national security. Seven & i's mainstay business, the convenience store, would not require a review of national security in the event that a foreign company took over. However, Seven & i is a large organization with a wide range of operations, including financial service.

'ECONOMIC METABOLISM JIC was established in 2018 to boost Japan's competition and invest in companies. The powerful trade ministry oversees it. On its website, the JIC promotes "economic metabolism," which is a term that policymakers use to describe the need to have stronger companies replace weaker ones.

Yokoo stated that the chemicals industry in Japan is one area that needs a shakeup. This sector includes companies that supply chip-related businesses. Japan is no longer the world leader in semiconductor manufacturing, but it still dominates in chemicals and materials essential to chips. JSR is, for instance, a leading manufacturer of photoresists - the light-sensitive chemicals that are used to etch patterns on wafers.

There are a number of chemical companies. He said that we need to reduce their number and increase their size in order for them to have a greater presence on the global market. He said that "we are aware of the necessity to mix medium-sized and large companies and are currently considering this internally." Yokoo stated that the consolidation policy "has not changed" but said JSR's immediate priority was to fix issues. JSR's newly-appointed CEO, who began on Tuesday, said last week that he would restore performance to the company after it was hit by losses in its Life Sciences unit.

Yokoo stated that he aimed for a return on investment of JSR at least 1.5-fold.

When asked if he would invest in Nissan, Yokoo replied that the automaker must first revive itself.

He said: "We're willing to provide equity in order to strengthen Japan's competitiveness in manufacturing, but not as a means of rehabilitation."

I said that I would be interested in speaking to them once they had turned themselves around. (Reporting and editing by Sharon Singleton, David Dolan, Miho Uranaka)

(source: Reuters)