News ReleaseLawson and Three F Announce Absorption-type Company Split

NEWS RELEASE

TOKYO, JAPAN, 4 12, 2017

At its Board meeting today, Lawson, Inc. decided to assume a portion of the convenience store business of Three F Co, Ltd. by way of a company split.
This action does not require full disclosure owing to the fact that the increase in total Lawson assets generated by the company split would be less than 10% of net assets on the last day of the previous financial term, and less than 3% of total revenue generated in the previous financial term.

1.Aim of the company split

Under the terms of the business integration contract signed by Lawson and Three F on April 13, 2016, the two companies established a new joint-venture L TF Co., Inc. and 89 stores of THREE F stores operated in Chiba and Saitama prefectures were turned into “LAWSON THREE F”double-brand stores. As a result of this effective collaboration, the two companies are now also ready to operate “LAWSON THREE F” double-brand stores in Tokyo and Kanagawa prefecture, and part of Chiba prefecture. The company split is a pre-arranged company split designed to transfer a portion of the rights and obligations relating to THREE F’s convenience store operation. 281 stores/properties currently operating under the THREE F and other brands will sequentially transfer to double-brand stores, starting from summer 2017.

From June 1, 2017, 281 of the above-mentioned stores due to be operated by double-brand “LAWSON THREE F” will be transferred to a new split company, L. TF. PJ. Co., Inc., a new full subsidiary of Three F.

All necessary legal procedures and actions relating to the prohibition of private monopoly have now been completed, and a suspensive condition included stating this company split should not violate anti-trust law.

2.Overview of company split

(1)Schedule for company split

Board meeting to approve company split (Three F) April 12, 2017
Board meeting to approve company split (Lawson) April 12, 2017
Signing of company split agreement April 12, 2017
Shareholders’ meeting (Three F) May 26, 2017
Tentative effective date June 1, 2017
Tentative payment date June 1, 2017

Note: The company split is a simple company split as determined under Item 2, Article 796 of the Companies Act for Lawson, Inc. For that reason, this company split can be executed without seeking prior approval from the general shareholders’ meeting.

(2)Style of company split
The company split is an absorption-type company split. Three F is the split company and Lawson is the succeeding company.
(3)Financial payments relating to the company split
A cash payment of 11,700 million yen is scheduled to be transfered from Lawson to Three F in relation to the company split.
(4) New equity and bond warrants generated by the company split
None
(5)Increase in capital related to the company split
This company split will not generate an increase in Lawson capital.
(6)Rights and obligations to be inherited by the succeeding company
Under the company split, Lawson will inherit a portion of the assets, rights and obligations pertaining to specific businesses.
(7)Expected discharge of obligations
There is not expected to be any problem with the discharge of respective obligations by both Lawson and Three F with respect to the company split.

3.Basis for allocation under company split

(1)Underlying basis and reason for allocation
To ensure a fair and appropriate allocation for the company split, Lawson appointed Mizuho Bank as an independent calculation agent. Mizuho Bank calculated the value of the underlying operations for the company split. Both Lawson and Three F considered the calculations performed by independent calculation agents, and the latest businesses performance by the underlying operations linked to the company split. Both companies also carefully discussed all details relating to the company split. Lawson and Three F then signed the company split agreement based on their judgement that the details written in the segment entitled (3) Financial payments relating to the company split (under 2. Overview of company split) were fair and proper.
(2)Items pertaining to the value calculation
i)Name of calculation agent and relationship with Lawson and Three F
Lawson appointed Mizuho Bank as an independent calculation agent to ensure that the pricing assessment and the overall procedures relating to company split No.1 and No.2 were fair and appropriate. Mizuho Bank conducted a value assessment of the underlying operations for the company split. Mizuho Bank has no special links with the people directly involved in the Lawson and Three F relationship, and no significant vested interest in either Lawson, Inc. or Three F Co., Ltd. Lawson and Three F do conduct regular banking business with Mizuho Bank. However, Mizuho Bank took special measures to prevent any undisclosed information relating to the company split being leaked to staff working in the bank’s financial sections, including staff in the banking and sales offices and other companies in the Mizuho financial group. That action secured the independence required to act as a third-part calculation agent for the company split.
ii)Calculations explained
When calculating the value of the underlying operations for the company split, Mizuho Bank judged it appropriate to base its evaluation on the expected cash flow to be generated from future business. The bank based that decision on the premise that the underying operation for the company split would belong to Lawson. Based on that decision, Mizuho Bank adopted an income approach when calculating the value of the underying operation, using the discounted cash flow (DCF) method.

The business forecasts used to calculate the future value of the underlying operation include some large expected increases, such as an estimated 1,743 million yen year-on-year increase in operating profit for the fiscal year ending February 2019, and a 160 million yen year-on-year increase for the fiscal year ending February 2020. These predictions take into account the gradual fostering of double-brand LAWSON THREE F stores during the near 12-month after the company split takes effect on June 1, 2017, as well as the incurrance of temporary costs during the full switchover period relating to store refurbishment and other investments and the transfer of stores to the new double-brand. Profit generated by the newly opened stores is expected to start contributing to performance in the fiscal year ending February 2019, and sales are then forecast to rise by approximately 2.6% year on year the fiscal year ending 2020. For that reason, while the operation may witness some temrporary falls in profit in the fiscal years ending February 2018 and 2019, the operation is expected to benefit from the earlier investment in terms of higher profits in subsequent business years.

Result of Mizuho Bank’s independent value calculation:
Assumed value (range) (DCF method): 10,171-12,735 million yen

When evaluating the value of the underlying operation, Mizuho Bank used information provided by Lawson, either through public disclosure or specifically for the purpose of the evaluation. All information and documentation provided was assumed to be accurate and comprehensive. Mizuho Bank did not undertake any active checks of the accuracy or entirety of the information. In addition, Mizuho Bank did not conduct its own evaluation, appraisal or measurement of the underlying assets and obligations, or any analysis or evaluation of each individual asset or obligation, nor did it commission a third-party appraisal or measurement of these assets.

Lawson judged the above company split price to be fair after considering a comprehensive range of factors, including Mizuho Bank’s value calculation, and the latest performance and future prospects of the underlying business operation.

4.Overview of Lawson, Inc. and Three F Co., Ltd.

Succession company
(1) Company name Lawson, Inc.
(2) Business location 1-11-2 Osaki, Shinagawa-ku, Tokyo
(3) Name and title of representative director Sadanobu Takemasu
President, Representative Director
(4) Main areas of business operation Development of the Lawson convenience store franchise chain
(5) Capital 58,506 millions of yen
(6) Established April 15, 1975
(7) Shares issued 100,300,000
(8) fiscal year-end End of February
(9) Major shareholders and shareholdings (as of February 28, 2017) ・Mitsubishi Corporation 50.1%
・Japan Trustee Services Bank, Ltd. (Trust account) 2.7%
・The Master Trust Bank of Japan, Ltd. (Trust account) 2.4%
(10) Recent overview of corporate results and financial position for FY2015 (Consolidated)
(Millions of yen)
Net assets 272,997
Total assets 803,212
Net assets per share (Yen) 2,643.97
Gross operating revenue 583,452
Operating profit 72,541
Recurring profit 69,622
Net profit 31,381
Net earnings per share (Yen) 313.81
Dividend per share (Yen) 245
Demerged company
(1) Company name Three F Co.,Ltd.
(2) Business location 17 Nihon-odori, Naka-ku, Yokohama-city, Kanagawa
(3) Name and title of representative director Hiroshi Yamaguchi, President, Representative Director
(4) Main areas of business operation Operation and support for franchisees of convenience stores
(5) Capital 1,396 millions of yen
(6) Established February 10, 1981
(7) Shares issued 7,707,095
(8) fiscal year-end End of February
(9) Major shareholders and shareholdings (as of February 29, 2016) ・JMK Mizuho Co., Ltd. 35.7%
・Junji Kikuchi 4.9%
・Lawson, Inc. 4.6%
・Kyoko Nakai 4.1%
・Mizue Usami 3.4%
(10) Recent overview of corporate results and financial position for FY2015 (Consolidated)
(Millions of yen)
Net assets 1,454
Total assets 13,577
Net assets per share (Yen) 178.14
Gross operating revenue 19,036
Operating profit -886
Recurring profit -862
Net profit -2,542
Net earnings per share (Yen) -335.66
Dividend per share (Yen) 0

5.Summary of inherited business segments

(1)Business operations of inherited segments
A portion of rights and obligations relating to the convenience store operations of 281 stores/properties
(2)Inherited assets, liabilities and any other rights and obligations
i)Rights and obligations relating to the underlying stores/facilities
- All fixed assets relating to the stores designated for transfer, with the exception of a portion of real-estate assets owned by the split company.
- The right to claim return of security deposits pertaining to store lease agreements
- The liability to return security deposits relating to sublease contracts and cash equivalent to the cumulative sum of those said security deposits
ii)Inherited contracts, etc.
Leases, subleases and any other related contracts
iii)Permits and licenses
All permissions, licenses, authorizations, registrations and notifications that the split company can legally transfer to the succeeding company on the day the company split takes effect (excluding applying licensings and include licensings of tobacco sales).
(3)Gross operating profit of approval division (2015.3.1 – 2016.2.29)
8,042 million of yen
(4)Book vale of split assets and liabillities
Details of the assets, liabilities and other rights and obligations under the company split will be disclosed once they are confirmed after the absorption-type company split takes effect on June 1, 2017.

6.After the company split

There will be no change to the succeeding company’s trading name, business location, representative director status, busness operations, capital or financial year end.

7.Future business outlook

Any impact on Lawson’s consolidated business performance from company split is expected to be minimal.
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