Japan’s largest supermarket chain, Daiei, is embarking on seven months of leadership vacuum following an stock sales scandal involving its president and vice-president, a period which many analysts believe will prove disastrous for the company.
An announcement made yesterday (10 October) revealed that Tadasu Toba and Kazuo Kawa, president and vice president respectively, had been demoted to directorships after reports of an insider trading scandal, which saw them pocketing ¥24m from sales of shares in Daiei OMC, the credit card subsidiary of Daiei. The company’s chairman and founder Isao Nakauchi will also step down, despite the fact that he was not directly involved.
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This stock transaction scandal is the latest hurdle for the debt-ridden company, which has faced two consecutive years of net losses. And Daiei now faces embarking on a three-year re-structuring plan, which hoped to reduce a group debt of ¥2.2 trillion by ¥500bn, without leadership. Both Toba and Nakauchi were key architects in the restructuring effort and their vacated posts will not be filled until the next general shareholder’s meeting, planned for May 2001.
This does not bode well for the company. Huge expansion during the 1980s secured a dominant role for Daiei in the Japanese supermarket sector, but its stores have failed to keep abreast of consumer tastes and since financial concerns emerged two years ago, many institutional investors have refused to go near the chain. Yukinori Oishi, analyst at Kokusai Securities, believes this negativity is set to continue, commenting: “It seems their [investors’] stance will not change for some time.”
The equity dealing manager at Tsubasa Securities, Haruki Takahashi, explained: “Investors who were expecting Daiei to restructure its business successfully are feeling let down.”
Daiei’s stock fell 9.77% today (11 October) on the Tokyo Stock Exchange, to a rate not far above the company’s all time low of 213, and ratings from investor services are advising, “sell.” Oishi commented that “the risk of bankruptcy is low,” however, as long as the chain maintains the support of its banks. Indeed, he adds: “Daiei’s fate depends on the decisions of its four main creditor banks.”
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By GlobalDataDaiei is expected to report interim earnings this Friday (13 October).
