Kao and Kanebo to combine forces

Kao, Japan's leading manufacturer of specialty chemicals and personal care and household products, and Kanebo, the country's second largest cosmetics maker, have announced a provisional agreement to consolidate the two companies' cosmetics businesses.

The deal would create a formidable force to compete with Japan's leading cosmetics firm and world number four Shiseido and provide a strong basis from which to enhance the companies' positions further afield in Europe and America

Kanebo's expertise lies in the manufacture and sale of a range of cosmetic products including the John Frieda range as well as medicated cosmetics. Kao meanwhile has a comparatively small personal care division, but has extensive research and development and marketing abilties.

By consolidating the corporate resources and know-how of the two companies, including R&D capabilities, marketing and sales strengths, and distribution networks, Kanebo and Kao say they plan to improve their capabilities for offering beauty products while increasing the value of their brands.

With this consolidation, the two companies have set themselves the objective of becoming the leading cosmetics company in Japan. In addition, Kanebo and Kao say they will accelerate the development of their activities overseas in Asia, Europe, the United States, and elsewhere to establish a strong position as a global cosmetics company offering quality high-value-added products.

Under the agreement Kanebo will split off its cosmetics divisions by the end of March 2004 including related subsidiaries, into a new company formed for this purpose. Meanwhile, Kao will purchase a 49 per cent equity stake in the new company, and Kanebo and Kao will manage the company as equal partners.

Kao will aim to split off its cosmetics divisions, including related subsidiaries, and merge them with the previously mentioned new company by the end of March 2007.

Takuya Goto, president and CEO of Kao and Takashi Hoashi, Kanebo's chairman and president explained yesterday in a statement that the final details of the merger of Kao's cosmetics business with the new company have not yet been decided, but, following the combination, the new company would be reorganised into two portions, namely manufacturing and sales.

It is hoped that the new company will benefit from the respective strengths of Kanebo and Kao, who will aim to take advantage of synergies in brand strategy, product development, manufacturing, sales, logistics, and overseas business development.

Discussions are ongoing regarding the details of the consolidation and the two companies are scheduled to sign a definitive agreement by the end of the year. The agreement does not extend to any line of business beyond cosmetics.