Rehabilitating Daiei - A Japanese Retailer in Trouble

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Case Details:

Case Code : BSTR161
Case Length : 15 Pages
Period : 1996 - 2005
Organization : Daiei Inc.
Pub Date : 2005
Teaching Note :Not Available
Countries : Japan
Industry : Retailing

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Crisis

By early 2000, Daiei had emerged as the largest retailer in Japan; it had grown so rapidly because of its aggressive expansion policies mainly supported by borrowings from banks. However, with deflation in the Japanese economy, Daiei's debts snowballed. The company went bankrupt in the fiscal 2001-02, reporting a net loss of 332.51 billion yen and a negative equity of 297.4 billion yen. The total current liabilities for the company that year had grown to 2.22 trillion yen (Refer Exhibit II for the liabilities and shareholders' equity of Daiei for 2002-04 period) with 90% of it either in the form of short term borrowings or long term debt due within a couple of years...

The Restructuring Efforts

On January 18, 2002, Daiei announced its three-year management restructuring plan with the intention of pushing down its consolidated interest bearing debts to under one trillion yen by the end of February 2005. Its three major creditor banks promised to provide financial support of 420 billion yen through a debt-for-equity deal.

The deal included swapping of some of Daiei's debts for shares and writing off some loans. Besides this, Daiei intended to retire 50% of issued shares and reduce the number of its subsidiaries from about 150 to less than 100. The company also planned to lay off 6,000 of its full-time permanent employees out of a total of 32,000...

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The Aftermath

IRCJ had earned a reputation for imposing strict turnaround plans on debtor firms, and the path for Daiei was also expected to be quite demanding. The agency was planning to shut down its unprofitable stores. IRCJ further planned to allow Daiei to open about 100 food supermarkets over the next five years under its rehabilitation program.

The agency's plans were based on the performance of Daiei's food supermarket operations, which were relatively better than its other businesses. IRCJ was also considering general merchandise store operations and credit card business as among Daiei's core businesses in the future (Refer Exhibit III for the merchandise mix of Daiei during the period 1999-2004)...


Exhibit I: Daiei's Financial Performance - Six Year Summary
Exhibit II: Liabilities and Shareholders' Equity
Exhibit III: Six Year Summary of Merchandize Mix
Exhibit IV: Outline of Revitalization Plan for Daiei
Exhibit V: Details of Financial Assistance

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