Yahoo Japan bids for control of fashion e-tailer Zozo for $3.7 billion

TOKYO (Reuters) – Yahoo Japan Corp (4689.T) said will take over Japan’s top online fashion retailer Zozo Inc (3092.T) for 400 billion yen ($3.70 billion), aiming to breathe fresh life into the website and upping its own game against rivals such as Amazon.com (AMZN.O).

Zozo’s billionaire founder Yusaku Maezawa said he will step down as chief executive and sell most of his stake after a series of missteps which have dragged the shares down around 60% over the past year.

“I will entrust Zozo to a new president and take my own path,” the flamboyant businessman and former punk bank member said in a Twitter post.

The deal offers Yahoo Japan a chance to take the lead in Japan’s online fashion space where Amazon and Rakuten Inc (4755.T) have struggled to make headway, and where Zozo’s mall Zozotown controls around 50% of the market for mid- to high-end fashion.

It also comes as investors have grown increasingly wary about growth prospects for Zozo – a more affordable, Japan-focused version of Britain’s Farfetch Ltd (FTCH.N) – after a failed experiment with bespoke tailoring and clashes with brands over discounting.

Yahoo Japan’s offer of 2,620 yen per Zozo share represents a premium of around 21% versus Wednesday’s closing price, but is 44% lower than its peak around a year ago. Zozo’s stock ended up 13% on Thursday, while Yahoo Japan shares rose 2%.

Yahoo Japan said it aims to buy 50.1% of Zozo, whose market value was 680 billion yen at Wednesday’s close, before Yahoo’s offer, Refinitiv data showed.

WINDFALL

The deal would give Maezawa a windfall of around $2.3 billion. He said he will sell a stake of around 30%, leaving him with about 6% in the company.

The entrepreneur is credited with creating a trendy, user-friendly website over a decade ago at a time of scepticism about whether Japanese consumers would buy clothes online. The site, whose early stores included A Bathing Ape, Hysteric Glamour and United Arrows Ltd (7606.T), still has few rivals.

In recent years, it is Maezawa’s lifestyle that has attracted attention. Known for dating celebrities and driving fast cars, he stands out among rich executives in Japan who mostly avoid ostentatious displays of wealth.

Maezawa signed up as the first private passenger to be taken around the moon by Elon Musk’s SpaceX, and paid $110 million for a Jean-Michel Basquiat painting.

However, fortunes have recently turned for Zozo and Maezawa, with the businessman recently selling part of his extensive art collection at Sotheby’s, saying he has no money.

Zozo booked its first annual earnings decline in the last financial year, due mainly to a failed made-to-measure service. It distributed skin-tight bodysuits to allow consumers to upload measurements, but ended up with few orders and huge costs.

Zozo has also been hit by the departure of several brands, some unhappy with its discounting policies and others wanting to create their own e-commerce services. In March, it said it secured a 15 billion yen commitment line from banks.

With Maezawa’s departure, Zozo will be led by director Kotaro Sawada, the companies said in a statement.

TECH TURBULENCE

Earlier in the decade, Maezawa launched an unsuccessful e-commerce business in China with fellow Japanese entrepreneur Masayoshi Son, chief executive of SoftBank Group Corp (9984.T).

The technology conglomerate controls telco SoftBank Corp (9434.T), whose consolidated subsidiaries include Yahoo Japan – which will next month change its name to Z Holdings Corp.

Yahoo Japan’s takeover of Zozo comes at a time of change in Japanese tech, where Rakuten is launching wireless telecom services in a direct challenge to SoftBank’s cash-cow business and Amazon has embarked on an aggressive push into fashion.

It also comes at a turbulent time for Yahoo Japan, which recently ousted the chief executive of another investment, retailer Askul Corp (2678.T), over lackluster results. Askul has requested Yahoo Japan dissolve its capital ties.