Nissin, Japan Tobacco Buying Katokichi

TOKYO (AP) — Japan Tobacco and Nissin Food Products are buying scandal-ridden Katokichi in a deal worth nearly $1 billion that will create Japan's biggest frozen food maker, the companies said Thursday.

Japan Tobacco Inc., the world's third-largest tobacco company by sales volume, is hoping to branch out into other sources of revenue — such as food and pharmaceuticals — as the number of smokers drops in Japan.

"The post-merger Katokichi will lay the groundwork for a solid business base domestically with the aim to become a global food maker," said Hiroshi Kimura, JT president and chief executive.

Japanese instant noodle maker Nissin Food Products Co., meanwhile, has been seeking to boost its strength in the increasingly cutthroat Japanese food industry. It bought Japan's fourth-biggest instant noodle maker Myojo Foods Co. last year.

Competition is intensifying in Japan's food industry because an aging population is shrinking the market and higher raw material costs are narrowing profit margins.

Under Thursday's deal, JT will launch a tender offer between Nov. 28 and Dec. 26 to buy shares in Katokichi Co. it doesn't already own for 109.19 billion yen ($999 million), or 710 yen ($6.51) a share. After the purchase, Japan Tobacco and Nissin will hold Katokichi together.

JT will transfer a 49 percent stake in Katokichi to Nissin and hold the remaining 51 percent stake. JT now holds about a 5 percent stake in Katokichi, based in western Japan.

Under the accord, each of JT's and Nissin's frozen food business will be transferred to Katokichi to create an operation with annual sales of 260 billion yen ($2.40 billion).

Moody's Investors Service affirmed the Aa3 long-term debt rating and issuer rating of Japan Tobacco following the Katokichi takeover announcement.

"Moody's believes that this consolidation will be positive for expanding JT's food business, leading to diversification of the company's cash flow sources," it said in a statement.

Katokichi said it has agreed to the tender offer. Earlier this year, Katokichi was hit with a scandal that centered around claiming trading among business partners without moving merchandise.

The scandal left behind a loss of 17 billion yen ($156 million), producing a 38 percent fall in sales to 215.4 billion yen ($2.0 billion; euro1.4 billion) for the fiscal year through March 2008.

Katokichi shares rose 16.8 percent Thursday to 694 yen ($6.36).

Earlier this year, JT purchased U.K. tobacco maker Gallaher Group PLC in a deal valued at 2.18 trillion yen ($20 billion) — the biggest acquisition of a foreign firm by a Japanese company.

Acquisitions have been popping up recently in the Japanese food sector. Beer-maker Kirin Holdings Co. said this month it will acquire Australian dairy product and soft-drink maker National Foods Ltd. from San Miguel Corp. of the Philippines for 294 billion yen ($2.7 billion).