Harbinger steps up battle

US hedge fund Harbinger has stepped up its battle to prevent the Y130bn ($1.07bn) merger of two Japanese retailers by publishing a 17-page analysis explaining why coffee chain Doutor should go it alone.

Harbinger’s war to stop Doutor and Nippon Restaurant System from joining forces to create one of Japan’s biggest restaurant chains has attracted curiosity in Japan, where foreign hedge funds have a reputation for trying to force mergers rather than forestall them.

The fund, which has steadily increased its stake in Doutor to more than 16 per cent since the merger was announced in April, says the 1,400-store chain should “accelerate” shop openings and “develop a new strategy for the premium segment” to compete with the successful Starbucks Japan.

It attacks Doutor management’s view that it is in a “shrinking market” faced with intensifying competition.

On the contrary, Harbinger maintains that “while competition is intense, self-service coffee is organically dynamic; it is one of the fastest growing sub-segments in the restaurant industry”.

Harbinger cites research from an unnamed equity analyst covering restaurants, who says the number of shops belonging to Japan’s top 14 coffee chains has leapt 74 per cent from 2,018 in 2002-03 to 3,509 in 2006-07.

“Japanese consumers have been receptive to self-service coffee chains and we believe that, as tastes and styles of the Japanese consumer become increasingly westernised”, the opportunity for coffee chains “to enhance sales and profit remains high.”

Cynics say Harbinger is holding out for better merger terms. Doutor shareholders will own only 50 per cent of the new company if the merger takes place. Judging by current market capitalisation, assets and sales, this should logically be higher, although NRS’s latest earnings are greater than Doutor’s.

A Harbinger spokesman said the company next planned “to communicate with all shareholders” to oppose the merger plan.

Doutor’s management needs a two-thirds approval of the merger from shareholders at its June 28 annual meeting.

Officials at Doutor and NRS were unavailable for comment.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.