Far Eastern to buy Pacific Sogo

Far Eastern Group (遠東集團), the parent of Far Eastern Department Stores Ltd (遠東百貨), is planning to buy out its rival, Pacific Sogo Department Stores (太平洋崇光百貨), an executive of the group said yesterday.

"We have spent at least NT$2.5 billion on investments in Pacific Sogo," said Douglas Hsu (徐旭東), chairman of Far Eastern Group. The move would make Far Eastern the nation's largest department-store operator.

Far Eastern is currently the third-largest department-store operator in Taiwan, managing nine stores that registered NT$17 billion in total sales last year.

Pacific Sogo, Taiwan's second-largest department-store operator, operates seven stores that registered NT$28 billion in sales last year, while Shin Kong Mitsukoshi Department Stores (新光三越) operate 10 stores that registered NT$35 billion in sales last year.

Hsu made the remarks yesterday at the opening of the "German Festival" that was organized by Far Eastern. The remarks confirmed a Chinese-language newspaper report that Far Eastern had spent at least NT$2.5 billion on Pacific Sogo to help the retailer and its parent company pay back debt.

Pacific Construction Co (太平洋建設), which controls Pacific Sogo, had debt amounting to 81 percent of its assets at the end of June, due to a slump in the local real-estate market.

Pacific Construction said on Thursday that investors agreed to delay redemption of US$75 million in bonds after the developer said it didn't have enough money to pay for the bonds.

Far Eastern's investment in Pacific Sogo helped redeem 43 percent of Pacific Sogo's shares from credit banks, the paper said, quoting unnamed sources at Pacific Sogo.

Market watchers said the possible acquisition of Pacific Sogo would be very positive for Far Eastern stores, who reported a 6.3 percent decline in sales last year from a year before.

"In the retail market competition is getting severe; Far Eastern has to expand its market share or it will be out of business," said Christine Wu (吳婉芳), a retail market analyst at Yuanta Core Pacific Securities Corp (元大京華證券).

She added that through this investment deal, Taiwan's No. 2 and No. 3 department-store chains, Pacific Sogo and Far Eastern, will be able to outsize Shin Kong Mitsukoshi.

Far Eastern shares rose 6.3 percent to close at NT$5.95 per share on the TAIEX.

Another industry pundit said that it can benefit Far Eastern a lot if it could be the market leader.

"Its bargaining power over vendors will increase because vendors will try their best to set up shops in Far Eastern stores," said Bei Lien-ti (別蓮蒂), associate professor of business administration at National Chengchi University.

She added that this can be a turning point for Far Eastern.

"Consumers always did not have much interest in Far Eastern because their vendors were not as popular as Shin Kong Mitsukoshi or Pacific Sogo's," Bei said.

"The current fashion market is more Western-oriented and consumers prefer international selections," Bei added.