Rakuten to Raise $2.2 Billion as Japan Post, Tencent Invest

(Bloomberg) -- Rakuten Inc. plans to raise 242 billion yen ($2.2 billion) by selling shares to investors including Tencent Holdings Ltd., Walmart Inc. and Japan Post Holdings Co., bankrolling expansions into AI, finance and mobile.

Japan Post will buy a stake of 8.32% via new and existing shares in Rakuten while China’s social media leader and the U.S. retail giant will take smaller slices, a filing showed Friday. Shares of Rakuten and Japan Post surged as the agreement builds on an existing alliance on logistics forged by the two last year.

The Japanese e-commerce pioneer has benefited from a boom in online shopping during the pandemic, but faces stiff competition from Amazon.com Inc. Last year, the company scaled back plans to offer free shipping after pushback from sellers using its platform prompted regulatory scrutiny. Rakuten is also expanding rapidly into wireless mobile, hoping to disrupt the staid industry.

“The alliance will focus on e-commerce first, where having access to Japan Post’s network will be a crucial advantage,” Rakuten Chief Executive Officer Hiroshi Mikitani said at a briefing in Tokyo. “We will also look into partnership in mobile and other businesses.”

Rakuten jumped 8.6% to close at 1,245 yen in Tokyo. The shares will be bought for 1,145 yen apiece, according to the filing. Japan Post climbed 4.9%.

Rakuten will invest the proceeds into logistics, artificial intelligence and its mobile network. The loss at the company’s wireless unit nearly tripled to 227 billion yen last fiscal year as it spent money to build out its network while offering free service to lure users.

The deal brings together Rakuten’s more than 100 million members and Japan Post’s last-mile access to every household and a network of 24,000 post offices, the two companies said in a presentation. The postal group also operates a life insurance business and a bank with about 120 million savings accounts.

Win-Win

“If Japan Post integrates some of Rakuten’s online services to its huge nationwide network, this can be a reasonably big win for both,” Amir Anvarzadeh, a market strategist at Asymmetric Advisors in Singapore, wrote in a note to clients. “It adds one more reason to own” Rakuten shares, he said.

The pair plan to create joint logistics centers and delivery and pick-up systems and will also share data to improve efficiency. Post offices will form counters where people will be able to sign up for Rakuten’s mobile service and make use of other services. They will also collaborate on cashless payments and insurance. Further details of the partnership will be unveiled in April.

“We thought long and hard about risk and return before deciding on this investment,” Japan Post CEO Hiroya Masuda said at the briefing. “We believe that going beyond a business arrangement to a capital tie-up will take this partnership to a new level.”

Rakuten’s relationship with Walmart dates back at least three years and includes collaboration on fresh produce delivery in Japan and an e-book operation in the U.S. But the connection with Tencent has only been a few months in the making, Hiroto Furuhashi, a managing executive officer at Rakuten, said in an interview after the announcement.

One possible area of partnership with the Chinese internet giant is gaming, including tapping Rakuten’s knowledge of the Japanese market to jointly develop titles, Furuhashi said. The Japanese firm, which has almost no presence in China, is exploring opportunities to connect its brand and merchants to Tencent’s WeChat messaging platform to expand its business in the country, he said, adding that nothing concrete has been decided.

“We have asked ourselves whether having our online ecosystem without gaming will be good enough,” Furuhashi said. “There is also a huge opportunity for Japanese merchants and our brand in China, including in e-commerce.”

(Updates with details of Tencent partnership from 11th paragraph)

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