By Kosaku Narioka

Aeon Co. said it is considering a merger of its Japanese drugstore unit Welcia Holdings with domestic rival Tsuruha Holdings, a move that would combine two of Japan's biggest pharmacy chains in a fragmented market.

Shares of Tsuruha Holdings and Welcia Holdings surged 11% and 17%, respectively, on Monday, while Aeon shares gained 2.5%.

Aeon, Welcia and Tsuruha said Monday that they are considering the potential business integration, but a decision has yet to be made. Local media reported the possible merger over the weekend.

If combined, Welcia and Tsuruha's annual revenue would top 2 trillion yen ($13.29 billion) and be more than twice that of the third biggest drugstore operator, MatsukiyoCocokara.

Sales at domestic drugstores have grown in recent quarters, thanks to a recovery in the number of shoppers, including foreign tourists, while pandemic-related demand has subsided.

Yet, competition has been fierce due to new store openings and consolidation of players in recent years.

Tsuruha has projected net profit would increase 2.5% to Y25.90 billion ($172.1 million) for the year ending May 15, with revenue forecast to grow 6.5% to Y1.033 trillion.

Welcia expects net profit to rise 3.6% to Y28.00 billion and revenue to climb 7.5% to Y1.230 trillion for the year ending Feb. 29.

Aeon in January said it was in talks with Hong Kong-based asset manager Oasis Management to acquire shares of Tsuruha as part of efforts to strengthen its existing tie-up with the Japanese drugstore operator.

Aeon held a 14% stake in Tsuruha as of mid-November. Oasis had a 13% stake in the drugstore operator as of May 2023.

Write to Kosaku Narioka at

(END) Dow Jones Newswires

02-26-24 0247ET