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U.S. cosmetics giant Revlon Inc. has failed to make the shortlist of candidates for sponsoring the rehabilitation of Kanebo Ltd. and Kanebo Cosmetics Inc., sources said Thursday.

Personal-care and cleansing products maker Kao Corp., Kose Corp. and French cosmetic giant L’Oreal SA have survived the selection process, which began after the Industrial Revitalization Corp. of Japan, a state-backed bailout agency, closed the application period Monday, the sources said.

Other survivors include U.S. health-care product maker Johnson & Johnson, U.S. investment banks Goldman Sachs Group Inc. and Morgan Stanley & Co., Japanese investment firm MKS Partners Ltd., and an investment firm affiliated with Daiwa Securities Co., they said.

IRCJ, currently Kanebo’s largest shareholder with more than half its voting rights, will narrow down the list to three or four in the second tender, slated for late September, and make its final decision in the third and last tender, scheduled for December.

The sale of the two Kanebo firms is expected to be one of the biggest merger and acquisition deals in Japan. IRCJ estimates it will be worth 400 billion yen.

Kanebo Cosmetics was spun off from Kanebo in May last year as the most profitable segment in the Kanebo group.

Bidders have been allowed to create alliances with other candidates to cover the cost.

Kao has been seeking to tie up with Goldman Sachs, while Kose joined Monday’s bidding in an alliance with Nikko Principal Investments Japan Ltd. Japan’s largest cosmetics maker, Shiseido Co., has dropped out out of the bidding.

While undergoing rehabilitation, Kanebo has been dealing with a massive case of accounting fraud carried out by former executives to inflate its performance in fiscal 2001 and 2002.

On Thursday, prosecutors indicted former Kanebo Ltd. President Takashi Hoashi, 69, and former Vice President Takashi Miyahara, 63, on charges of issuing falsified financial statements in violation of the Securities and Exchange Law.

The former Kanebo executives were arrested July 29 and have reportedly owned up to the charges.

Hoashi and his subordinates allegedly doctored official financial statements to show the Tokyo-based firm was in the black when it really had a capital deficit of 81.9 billion yen in fiscal 2001 and a deficit of 80.6 billion yen in fiscal 2002.

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