Asahi Chemical Industry Co. and Japan Tobacco Inc. have reached an agreement to transfer Asahi’s food business operations to the tobacco giant, including Asahi Foods Corp. and seven other subsidiaries, on July 1, the two firms announced Wednesday.
Asahi’s food units are expected to generate total annual sales of 48 billion yen for fiscal 1998, which ends in March, accounting for 4 percent of the firm’s groupwide sales.
The companies declined comment on the price of the deal, but it is expected to amount to between 20 billion yen and 30 billion yen, according to industry sources.
Japan Tobacco, which holds 80 percent of the tobacco market, is trying to diversify into other business sectors, particularly food and pharmaceuticals. Asahi Chemical Industry said it decided to sell its food operations to focus on its core business.
Asahi Chemical President Kazumoto Yamamoto said that his firm sees little prospect for further growth in the food business unless an expansion was made into the consumer market, which would require vast expenses for marketing and advertisement.
Asahi’s food subsidiaries mainly focus on processed foods such as frozen hamburger steaks and baked goods for corporate customers.
The subsidiaries to be transferred to JT include Asahi Foods, Sunburg, Thai Foods International and Hans Continental Smallgoods of Australia.
The firm once tried to advance into the consumer market in the early 1980s but failed to overcome tough competition, Yamamoto said.
Morihiko Sometani, senior executive vice president of Japan Tobacco, said his company would compete in the consumer food market using marketing and advertising knowhow gained through its experience in tobacco and soft drinks.
About 1,300 employees work at the Asahi units, and all of them, if they wish, will be transferred to Japan Tobacco with the same salaries, Sometani said. “We want to make the food and pharmaceutical businesses pillars (of support for the company) in the next generation,” he said.
JT’s unconsolidated sales in food products were 15.3 billion yen for fiscal 1997, but that is likely to exceed 40 billion yen this fiscal year, thanks to the success of a new water product, Sometani said.