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U.S. cosmetics maker Revlon Inc. and U.S. investment bank Morgan Stanley & Co. are expected to enter a tender for Kanebo Ltd. and Kanebo Cosmetics Inc., according to industry sources.

The two companies are expected to take part in the first of a string of tenders by the Industrial Revitalization Corp. of Japan on Monday, the sources said.

Kao Corp., a major cosmetics maker, has also told the IRCJ it will submit bids in the tenders and is likely to tie up with Goldman Sachs Group Inc., a U.S. investment bank, in making a bid, according to the sources.

The IRCJ intends to hold the second round of tenders in late September and narrow the number of bidders to three or four teams by the final tender expected at the end of the year, the sources said.

The sale of Kanebo firms is expected to be one of the largest merger and acquisition cases in Japan, with analysts estimating the acquisition cost in the 400 billion yen range.

Kanebo Cosmetics was spun off from Kanebo in May 2004 as a more profitable segment of the Kanebo group. The two are undergoing rehabilitation with IRCJ support.

The IRCJ will select the buyer by taking into account not only the size of bids but also the issue of whether the buyer will be able to rehabilitate the Kanebo group of companies, they said.

The IRCJ is Kanebo’s largest shareholder with more than half of its voting rights.

In June, the Tokyo Stock Exchange delisted Kanebo after it acknowledged systematically falsifying financial statements for five years through March 2004.

In mid-July, more than 10 foreign and Japanese firms, including Shiseido Co., Japan’s largest cosmetics maker, told the IRCJ they will submit bids in the tenders.

The 10 included three Japanese cosmetics makers — Kose Corp. along with Kao and Shiseido. There were also foreign candidates such as L’Oreal SA of France, Procter & Gamble Co. of the United States and RHI International SA, formerly called Ripplewood Holdings LLC, which in 2000 bought the Long-Term Credit Bank of Japan, now known as Shinsei Bank.

Shiseido has decided to withdraw from the series of tenders for the Kanebo firms, company sources said Wednesday.

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