Tokyo, Nov. 19 - Japan Tobacco Inc. and instant noodle maker Nissin Food Products Co. have decided to work together in purchasing food processor Katokichi Co., The Nikkei reported in its Tuesday morning edition.
Under the proposed framework, JT will conduct a tender offer for all outstanding shares of Katokichi. After the company is delisted, JT will then sell a 49% stake to Nissin. The three companies are expected to reach an agreement this month.
Katokichi's market capitalization came to about Y70 billion as of Monday, but totals nearly Y90 billion based on the average stock price over the past three months. Taking a premium into account, the acquisition price is expected to reach around Y100 billion.
In addition to improper accounting practices coming to light at Katokichi earlier this year, a subsidiary was found to have used mislabeled ground beef from a processed-meat supplier. Katokichi's group sales are expected to fall 38% to Y215.4 billion for the year ending March 2008, with pretax profit plunging by half. The company will aim to turn its operations around with the help of JT and Nissin.
JT took a 5% stake in Katokichi in 2000, forming a tie-up in the frozen-food segment. The tobacco company's food-related sales total roughly Y300 billion, a mere 5% of its overall revenue. Amid a sharp decline in the domestic cigarette market, JT sees the acquisition as a step toward nurturing its food operations into a core source of earnings.
Nissin has more than 50% of the domestic market for instant noodles. But faced with market saturation, it is looking to bolster its fresh- and frozen-food operations, including udon noodle products. The deal provides the instant noodle giant with access to Katokichi's udon business.