The Industrial Revitalisation Corporation of Japan (IRCJ) - a body created by the government to help revive heavily indebted companies - is to become a majority stake owner in a spin-off of Kanebo cosmetics. The new business is to be formed by early May.
The IRCJ will take an equity stake of more than 50 per cent and is to take over all of the cosmetics unit's bank debt at face value to ensure that creditor banks will not lose any money when the transaction is completed.
"It is a new scheme, different from conventional rescue plans which usually ask creditor banks to forgive debts," said Kanebo president Takashi Hoashi.
Last month Kanebo said it was in talks to sell its cosmetics division to Kao - Japan's top household products maker and fourth largest cosmetics firm - in a deal estimated to be worth more than €3 billion, making it the largest asset sale ever in Japan outside the financial industry.
The purchasing plan was met however with strong opposition from Kanebo's trade union and analysts who questionned how Kanebo would survive without its cosmetics business, which accounts for more than 40 per cent of its sales.
"Having considered the union, shareholders and the companies we do business with, we concluded that the deal would not work and so we decided to pass on talks with Kao," said Hoashi.
Shiseido - Kanebo's largest rival - and Kao continue to prosper however with plans to move in on the Chinese cosmetic and toilettre market this year.
Shiseido plans to compete for market share in China and to strengthen its cosmetics business in Japan. The company is to restructure its domestic market into seven areas, including northern Japan, Tokyo and western Kanto, Kinki and Kyushu, assigning a corporate senior executive officer to each region.
Kao has also scheduled exports of its Sofina cosmetics brand into China for March and plans to set up a wholly-owned subsidiary in the country, opening ten outlets in Shanghai and neighbouring areas.
"We cannot compete with our rivals domestically and internationally if we carry interest-bearing debt totalling more than €3.7 billion while our sales are only about the same," said managing director of Kanebo Kenzaburo Shimada.
Although Kanebo is expected to post results showing liabilities exceeding its assets at the end of the current fiscal year to March 31, the company plans to ask the Tokyo Stock Exchange to exempt it from de-listing rules and maintain its stock until the newly-proposed restructuring plan is completed.
Kanebo took in €1.6 billion in revenue from its cosmetics operations in the year to March 2003, with revenue from its other businesses such as food, pharmaceuticals and textiles totalling €2.3 billion.