Japanese tech giant Rakuten is set to raise $2.2 billion by issuing new shares to Walmart, Tencent and Japan Post. This move by the company is expected to give it the funds it needs to further expand its business and market share.
The details of the share issuance are still being finalised, and more information will be made known in due course. Nevertheless, Rakuten’s announcement to issue new shares marks an important milestone in the company’s history, and has significant implications for the tech landscape in Japan.
Overview of Rakuten
Rakuten, Inc. is a Japanese-based e-commerce, FinTech and online marketplace company founded in 1997. It services over one billion customers and offers a variety of activities and products in the travel, entertainment, communications, retail and financial services industries. Rakuten has its headquarters in Tokyo’s Ebisu district with offices worldwide that include China, Taiwan and Germany.
Recently announced in 2020 by Rakuten’s Chairman & CEO Hiroshi Mikitani is the intention to issue new shares to three companies globally – Walmart Inc., Tencent Holdings Ltd., and Japan Post Co., Ltd. – to bolster their current strengths in e-commerce, FinTech, digital content and more. This equity alliance brings several benefits and synergies to strengthen Rakuten’s Global Ecosystem and drive innovation for all parties involved and customers worldwide. Furthermore, each partner will collaborate respectfully with Rakuten’s business model of creating an open ecosystem where all benefits through cooperation return to the user or customer experience.
Overview of Walmart, Tencent and Japan Post
Walmart is the world’s largest retailer, based in the United States and founded in 1962 by Sam Walton. It has operations in 27 countries worldwide, with 11,200 stores globally. It specialises in groceries, apparel and general merchandise retailing.
Tencent is a Chinese multinational conglomerate holding company founded in 1998. It specialises in internet-related services and products, artificial intelligence and technology. The company has over 90 services operating globally including WeChat, a popular social networking app with over one billion monthly active users.
Japan Post is the state-owned post office of Japan founded in 1871. It is one of Japan’s largest employers with nearly 250,000 employees as of 2019. The pivotal role Japan Post plays for the postal service makes it indispensable for home delivery services for letters and packages throughout Japan. More than just a mail carrier though, the Japan Post group also offers banking services such as savings accounts and insurance products like life insurance policies to meet the complex financial needs of modern Japanese consumers today.
Japanese tech giant Rakuten to raise $2.2 billion by issuing new shares to Walmart, Tencent and Japan Post
Japanese tech giant Rakuten has recently announced that it will raise $2.2 billion by issuing new shares to Walmart, Tencent and Japan Post.
This issuance of new shares could be seen as a way for the company to raise capital and potentially expand its business. Therefore, it’s important to understand the reasons behind Rakuten’s decision and its possible implications on the business.
Details of the new share issuance
Rakuten Inc. has recently announced an issuance of a new class of common stock that will be offered to Walmart, Tencent Holdings and Japan Post Holdings as part of a strategic investment.
Under the plan, Rakuten’s common stock is offered through a private placement transaction with the abovementioned companies. Rakuten aims to raise approximately ¥400 billion to support future business expansion. The new shares will be listed on the Tokyo Stock Exchange on July 20, 2021 when the offering is expected to close and is subject to approval by the Financial Services Agency.
The details of the offering are as follows:
- Each company will subscribe for 40 million shares each of a newly issued type of common stock at the rate of ¥3,000 per share, equating to ¥120 billion from each company; Walmart and Tencent’s subscription price will be fixed while Japan Post will have an option to choose on or after closing date based on Rakuten’s market price at that time.
- In addition, each company can purchase another batch of 10 million shares before June 30th 2021 or as early as April 1st 2021 if certain conditions are met.
- The amount received by Rakuten from this private placement transaction is expected togethrough in August 31st, 2021 at closing date.
- If approved by the Financial Services Agency and the Tokyo Stock Exchange, this issuance should represent approximately a 10% increase in domestic float on Tokyo Stock Exchange, promoting liquidity in Rakuten’s common stock pricing and supporting stronger investor participation going forward.
Reasons for the new share issuance
Rakuten Inc. recently announced its plan to issue new shares to Walmart Inc., Tencent Holdings Ltd. and Japan Post Holdings Co., Ltd. The company’s board of directors approved the issuance of up to 112 million new shares for ¥1,597 each, amounting to ¥182 billion (approximately $1.75 billion).
Through this share issue, Rakuten seeks to enhance its strategic partnerships with Walmart, Tencent and Japan Post for mutual growth.
This share issuance is intended to facilitate expansion in key areas where Rakuten’s business aligns with that of each partner:
- The creation of more attractive value-added services for customers
- Diversifying and expanding product and services offerings through partnerships
- Globalising Rakuten’s business worldwide
With strong collaboration between these three major players and contributions from numerous other venture partners, Rakuten hopes this move will strengthen its presence in the global marketplace and consolidate relationships with its partners.
Impact of the Share Issuance
Japanese tech giant Rakuten recently announced the issuance of new shares worth $2.2 billion. These shares will be distributed to Walmart, Tencent, and Japan Post.
This massive share issuance will have a seismic effect in the markets, with investors, industry watchers, and everyday consumers all interested to see the outcome of this strategic move.
Impact on Rakuten’s financials
The equity financing transaction announced on January 28, 2020 by Rakuten Inc., will see Walmart, Tencent and Japan Post acquire a total 1.586 million company shares.
This additional equity infusion into Rakuten will significantly increase its cash reserves to finance its key financials, such as capital investments. Increased cash reserves allow greater capacity to meet financial obligations such as external debt repayments through debt financing. Further, this will strengthen the company’s long-term investment decisions and capitalise on new opportunities in the digital commerce sector.
The share issuance is likely to impact Rakuten’s financial statements and market value, with minority shareholders owning smaller stakes in the business resulting from dilution due to the higher number of outstanding shares. The expected capital inflows and new investments associated with the equity financing transaction can improve Rakuten’s overall financial position and market value by increasing shareholders’ wealth over time.
Impact on Walmart, Tencent and Japan Post
Share issuance presents several opportunities for the issuing company, and the impact of it will vary depending on the company. For example, Walmart, Tencent and Japan Post have used share issuances to grow their businesses, with varying degrees of success.
Walmart’s 2017 share issuance raised approximately $3 billion in new capital to invest in capital expenditure and global expansion. The move was largely seen as a success, as the share price increased after the announcement and investors appeared satisfied with the returns they received on their investments.
In 2018, Tencent issued additional shares to finance its ongoing global expansion plans and larger scale projects such as cloud computing. As a result, despite some short-term market volatility near the announcement date, shares steadily rose throughout the year following large increases in market capital. This has resulted in expanded markets for Tencent in areas such as China’s VR/AR industry, Europe, and emerging markets.
Japan Post’s 2015 share issuance was met with strong investor demand that sold over twice the allotted amount within two days of its opening. This provided Japan Post with an estimated ¥2 trillion infusion of capital, which it used to expand its reach into high growth areas such as health care service provision around Japan’s ageing population and logistics services for bricks-and-mortar stores using drones for home deliveries. In addition, many analysts saw the move as a positive step towards modernising Japan’s postal business model which dates back a century ago by focusing more on e-commerce infrastructure in today’s digital economy.
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