Mitsukoshi, Isetan in talks on capital tie

Tokyo, July 25: Mitsukoshi Ltd. and Isetan Co. Ltd., Japan's fourth and fifth-largest department stores, are in talks on a capital alliance, a source famililar with the matter told the sources on Wednesday.

The talks could eventually lead to a merger that would create the industry's largest with combined annual sales of about 1.6 trillion yen (.3 billion), according to an earlier report in the the Nikkei business daily.

Japan's department store market contracted for nine straight years through 2006 amid growing competition with large suburban shopping malls and deflation, prompting store operators to seek out alliances to survive.

The tough market conditions prompted Daimaru Inc. and Matsuzakaya Holdings Co. earlier this year to agree to a merger.

Mitsukoshi operates 20 outlets nationwide while Isetan has 13, and they have few geographical overlaps, the Nikkei said.

In similar statements issued Wednesday morning, Mitsukoshi and Isetan both said nothing had been decided.

The Tokyo Stock Exchange suspended trade in both shares due to media reports of the alliance.

Reuters>