Japan Tobacco And Nissin to Buy Katokichi -Paper

Source from:  Most Popular – Business Reuters - Tuesday, November 20 11/21/2007

Japan Tobacco Inc and instant noodle maker Nissin Food Products Co Ltd plan to team up to acquire scandal-hit frozen food company Katokichi Co Ltd in a deal expected to reach 100 billion yen ($911 million) - TOKYO, Nov 20 - Japan Tobacco Inc and instant noodle maker Nissin Food Products Co Ltd plan to team up to acquire scandal-hit frozen food company Katokichi Co Ltd in a deal expected to reach 100 billion yen ($911 million), the Nikkei business daily reported on Tuesday. Japan Tobacco, which is the world's third-largest cigarette maker and took a 5 percent stake in Katokichi in 2000, hopes the acquisition will help it strengthen its food-related operations as it looks to offset declining demand for cigarettes in the Japanese market, the newspaper said. Since acquiring the Gallaher Group in the biggest purchase of a foreign company by a Japanese firm, Japan Tobacco has said it is open to buying more firms in the future. Kiyokazu Kurauchi, senior analyst at Yasuda Asset Management Co Ltd, said the reported deal had been expected as Japan Tobacco needs to beef up its food business by engaging in consolidation in light of the shrinking domestic cigarette market. "As long as goodwill won't be too big, it's a positive move," he said, adding the impact on earnings will unlikely be huge, however. Kurauchi also said consolidation in the country's frozen-food sector, which has hundreds of companies, will likely help to reflect higher raw materials costs on prices as there will be fewer competitors. Under a proposed deal, Japan Tobacco would buy all of Japan's top frozen-food firm Katokichi shares through a tender offer and then sell a 49 percent stake to Nissin after Katokichi has been delisted, the Nikkei said. The three companies are expected to come to an official agreement this month, the newspaper said. Japan Tobacco spokeswoman Shoko Hamamoto said nothing had been decided and the company has nothing to announce at this moment. Nissin Food and Katokichi also said nothing had been decided. As of 0453 GMT, shares of Japan Tobacco were 2.4 percent lower at 651,000 yen, underperforming a 1.2 percent fall in the Tokyo exchange's foods sector subindex . Japan Tobacco, 50 percent owned by the Japanese government, makes Mild Seven cigarettes and owns the Camel, Winston and Salem brands outside the United States. Nissin Food was flat at 3,960 yen, while Katokichi was untraded awash with buy orders at 506 yen, up 19 percent from Monday's close. Nissin aims to bolster its fresh and frozen-food operations with the domestic instant noodle market saturated. The deal would give it access to Katokichi's udon noodle business, the Nikkei said. Katokichi's stock has halved since March when media reports of improper accounting surfaced. In April, the company reported improper transactions with several other companies worth 98.5 billion yen over a six-year period. In addition to the accounting problems, a Katokichi subsidiary was recently reported to have been involved in mislabelling of ground beef. Earlier this month, Katokichi slashed its previous operating profit forecast for the year by 59 percent to 5.4 billion yen. (Reporting by Nathan Layne and Aiko Hayashi; editing by Malcolm Whittaker) Enditem