Nissin, Japan Tobacco Buying Katokichi

Competition is intensifying in Japan's food industry because an aging population is shrinking the market. Higher raw material costs have also hit the industry. Also, Japan Tobacco, 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 nose-dives in Japan.

Japanese instant noodle maker Nissin, 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.

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

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

Under the accord, each of Japan Tobacco's and Nissin's frozen food business will be transferred to Katokichi to create an operation with annual sales of 260 billion yen ($2.4 billion).

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 billion) for the fiscal year through March 2008.

Katokichi shares were up 2.8 percent at 4,110 yen ($37.88) in Tokyo trading Thursday morning.

Earlier this year, Japan Tobacco purchased U.K. tobacco maker Gallaher Group PLC in a deal valued at $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).