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Meiji Seika Kaisha, Ltd. ("Meiji Seika") and Meiji Dairies Corporation ("Meiji Dairies") have reached an agreement, conditional upon the approval of the respective extraordinary general meetings of shareholders of both companies to be held on November 26, 2008, with respect to the establishment of MEIJI Holdings Co., Ltd. (the "Joint Holding Company") through a share transfer scheduled to become effective on April 1, 2009 (the "Share Transfer"). As of September 11, 2008, pursuant to the approval of the respective meetings of the Boards of Directors of Meiji Seika and Meiji Dairies held on September 11, 2008, both companies have prepared a "Share Transfer Plan" pertaining to the Share Transfer, and have entered into an agreement concerning the management integration of the two companies (the "Integration Agreement"). In connection with the foregoing we would like to provide notice of the following.
| 1. | Background and Purpose for Management Integration through Share Transfer |
| | The Japanese food industry contributed to enriching the diet of the people of Japan, which has weathered periods of both turbulence following World War II and economic boom, through the improvement of food materials, processing technology innovations, and the continuous enhancement and improvement of product development capabilities. Meiji Seika (established in 1916) and Meiji Dairies (established in 1917) both originated from the former Meiji Sugar Manufacturing Co., Ltd., and have each developed into leading food products manufacturers in Japan, having enjoyed the trust and support of customers throughout a history spanning more than 90 years. While Meiji Seika has expanded its business domains from confectionery and food products to pharmaceuticals and has developed into a unique "food and pharmaceutical" company offering products and services under the keywords of "Good taste and Fun", "Health" and "Reliability", Meiji Dairies has developed into a "comprehensive dairy" company providing "Delicious taste", "Health" and "Nutrition" centering around milk and milk-oriented technology and product development capabilities. |
| | In recent years, the companies in the Japanese food industry have needed to be more competitive as a result of factors such as the expected mid- to long-term reduction in market size due to population decline and the aging society, sharp rises in global raw material prices, and intensification of competition among companies in the matured market. Meanwhile, rapidly changing lifestyles and values require companies to strengthen product development and marketing which precisely capture "diversification of eating habits", "enhanced awareness of health", "heightening awareness in food safety" and other consumer needs, and to seize growth opportunities through the creation of new demand. |
| | In addition to the historically amicable relationship between Meiji Seika and Meiji Dairies, the two companies have recently been conducting joint product development and other initiatives, and establishing a cooperative relationship. Recently, based on the understanding of the business environment described above and as a result of discussions concerning the development and promotion of the two companies' cooperative relationship in order to further enhance their respective operating bases and strengthen competitiveness, Meiji Seika and Meiji Dairies reached the conclusion, that it would be best to work towards establishing sustained growth strategies and differentiation strategies by maximizing "brand power", "research and development capabilities", "technology capabilities", "marketing capabilities" and other management resources of both companies through management integration. The two companies, who as leading companies in their respective business domains of confectionery and dairy products have benefited from the strong support and trust of their customers, believe they can capture even greater opportunities for growth by further developing the current cooperative relationship through integrating their management. |
| | Through the management integration by means of the Share Transfer (the "Management Integration"), the newly formed MEIJI Group will become a unique corporate group capable of contributing to people's healthy and pleasant lives in a wide range of areas, from food products such as confectionery and dairy products to pharmaceuticals. In particular, while taking advantage of its existing strengths in the pharmaceutical business, the MEIJI Group will continue to cultivate and develop foundations for new businesses in the "health" business segment, which is expected to grow significantly in light of the "advancing aging society" and "enhanced awareness of health". Then, as one of the world's leading "food and health" corporate groups possessing top brands in many categories and commanding in excess of one trillion yen in sales, the MEIJI Group strives to continue to exponentially improve the value of the MEIJI brand and grow and develop each business by offering the values which both Meiji Seika and Meiji Dairies have pursued ("Good taste and Fun", "Health and Nutrition", and "High Quality and Reliability") to all generations of customers. Furthermore, the MEIJI Group will strengthen global competitiveness and work towards further sustained growth by providing high value-added products with the integrated strength of both companies, developing business in growing sectors both in Japan and overseas, and strengthening the operating base. |
| 2. | Anticipated Effects of the Management Integration |
| (1) |
Enhancement of the value of the newly integrated "MEIJI" brand and strengthening of existing businesses |
| Based on the stable relationship of trust established by both Meiji Seika and Meiji Dairies with their customers: |
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- ・ Provide a diverse product lineup to consumers of every generation, from infants to the elderly, and continue to develop as the most familiar and beloved brand in the realm of everyday eating scene
- ・ Further strengthen quality assurance systems and further develop as a high quality and reliable brand by integrating Meiji Seika and Meiji Dairies’ sophisticated quality control technologies for room temperature, chilled or frozen products
- ・ Further reinforce and develop existing core businesses through such improvement of the new "MEIJI" brand
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| (2) |
Expansion of business development opportunities through the creation of new demand |
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- ・ Expand business development opportunities by integrating the achievements and expertise accumulated by both companies with respect to fundamental technology, product development, manufacturing technology, quality analysis, intellectual property and achievements in pharmaceutical research in such diverse areas as confectionery, dairy products, nutraceutical food products and pharmaceuticals
- - Strengthen development capabilities with respect to high value-added products in existing core businesses
- - Develop high value-added products and create new markets in the "Health" business segment with a focus on healthcare and sports nutrition capitalizing on consumer's growing health awareness and diversifying diet
- - Create new demand in the "Food" domain through new product development by integrating functional materials and manufacturing technologies, in which both Meiji Seika and Meiji Dairies are strong
- ・ With the new "MEIJI" brand, proactively develop businesses in growing markets overseas such as China and other Asian markets
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| (3) |
Improvement in competitiveness by reinforcing marketing capabilities |
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- ・ Develop effective advertising and publicity and cross-sectional promotional campaigns by utilizing the know-how of both Meiji Seika and Meiji Dairies' marketing teams
- ・ Increase efficiency of promotion of products and product display control in outlets through the collaborative efforts of the sales departments
- ・ Complement and effectively utilize the sales channels of both companies, which are a strength of both companies
- ・ Utilize the brand images, including product brands of both companies effectively
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| (4) |
Improvement of operational efficiency and cost synergies |
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- ・ Reduce raw material cost through joint purchasing
- ・ Improve efficiency through mutual use of distribution systems and networks
- ・ Improve efficiency by consolidating, unifying and standardizing similar or overlapping operations
- ・ Improve efficiency and reduce investment by future integration of core IT systems
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| (5) |
Enhancement of the superiority of operating and financial bases |
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- ・ Strengthen creditworthiness and financing capabilities by establishing solid operating and financial bases
- ・ Improve presence in the food and pharmaceutical industry both in Japan and overseas and reinforce capabilities for strategic business alliances
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| 3. | Reorganization of the Group to Promote Early Realization of Anticipated Effects |
| (1) |
Through effective use of all business resources across the corporate group, the Joint Holding Company will expand businesses in the existing business area, create new markets and seize business development opportunities. Moreover, the Joint Holding Company will conduct a reorganization of the business systems to maximize the corporate value of the group. |
| (2) |
With respect to the reorganization, operational and functional restructurings are planned, which will include the integration of the "Health and nutrition" segments in which substantial development is expected, "confectionery", "milk-processed products", "pharmaceuticals", "shared services", etc. The two companies will determine the conditions for the reorganization and execute it as soon as possible within the next two years. |
| 4. | Summary of Share Transfer |
| (1) |
Schedule of the Share Transfer |
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| September 11, 2008 |
Meetings of the Board of Directors (both companies) to approve the preparation of Share Transfer Plan and the conclusion of the Integration Agreement |
| September 11, 2008 |
Preparation of Share Transfer Plan (both companies)
Conclusion of Integration Agreement (both companies) |
September 12, 2008
(scheduled) |
Public Notice of Record Date for the Extraordinary
General Meetings of Shareholders (both companies) |
September 30, 2008
(scheduled) |
Record Date for the Extraordinary General Meetings of Shareholders(both companies) |
November 26, 2008
(scheduled) |
Extraordinary General Meetings of Shareholders (approval of the Share Transfer Plan) (both companies) |
March 26, 2009
(scheduled) |
Delisting of shares from the Tokyo Stock Exchange (both companies) |
March 26, 2009
(scheduled) |
Delisting of shares from the Nagoya Stock Exchange (Meiji Dairies) |
April 1, 2009
(scheduled) |
Incorporation and registration of the Joint Holding Company (Effective date of the Share Transfer) |
April 1, 2009
(scheduled) |
Listing of shares of the Joint Holding Company |
If the necessity arises in the course of proceedings of the Share Transfer, or other compelling circumstances arise, changes to the schedule may be made upon consultation between the two companies. |
| (2) |
Details of Allocation in Share Transfer (Share Transfer Ratio) |
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| Company name | Meiji Seika | Meiji Dairies |
| Share Transfer Ratio | 1 | 1.17 |
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| (Note 1) |
0.1 shares of the common stock of the Joint Holding Company will be allocated and delivered per share of common stock of Meiji Seika, and 0.117 shares of the common stock of the Joint Holding Company will be allocated and delivered per share of common stock of Meiji Dairies. If the number of Joint Holding Company shares which must be delivered to a shareholder of Meiji Seika or Meiji Dairies through the Share Transfer includes a fraction of less than one share, the Joint Holding Company will, pursuant to Article 234 of the Companies Act of Japan and other relevant laws and regulations, pay the relevant shareholder a cash amount corresponding to the fractional shares attributed to such fraction.
The above share transfer ratio (the "Share Transfer Ratio") is subject to change, upon mutual consultation between the two companies, in the event that a material change in the financial or management condition of either Meiji Seika or Meiji Dairies or certain other events occur.
One unit of shares of the Joint Holding Company shall consist of 100 shares. |
| (Note 2) |
Number of Newly Issued Joint Holding Company Shares to be Delivered through the Share Transfer (Scheduled)
76,345,254 shares of common stock
The number of newly issued Joint Holding Company shares to be delivered through the Share Transfer has been calculated based on the total number of issued and outstanding shares of Meiji Seika (385,535,116 shares) and those of Meiji Dairies (329,648,786 shares) as of March 31, 2008; provided, however, that Meiji Seika and Meiji Dairies plan to cancel all of their treasury shares, to the extent practicable, as of the day immediately preceding the effective date of the Share Transfer (the “Effective Date of Share Transfer”). Accordingly, the respective treasury shares which the companies held as of March 31, 2008 (Meiji Seika: 6,448,955 shares; Meiji Dairies: 1,130,509 shares) have not been included in calculating the above number.
Because Meiji Seika and Meiji Dairies plans to cancel treasury shares repurchased by them between March 31, 2008 and the day preceding the Effective Date of Share Transfer, to the extent practicable, the number of newly issued Joint Holding Company shares to be delivered through the Share Transfer may change. |
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| (3) | Calculation of Share Transfer Ratio |
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| a. |
Basis of Calculation
In order to ensure the fairness of the calculation of the Share Transfer Ratio in the Share Transfer, Meiji Seika and Meiji Dairies requested Ernst & Young Transaction Advisory Services Co., Ltd. ("Ernst & Young") and PwC Advisory Co., Ltd. ("PwC"), respectively, to conduct a calculation of the Share Transfer Ratio, and each of Meiji Seika and Meiji Dairies obtained share transfer ratio calculation reports prepared by Ernst & Young and PwC, respectively.
After analyzing the financial information of both Meiji Seika and Meiji Dairies and the terms and conditions of the Share Transfer, as well as the results of the financial and tax-related due diligence, Ernst & Young conducted the calculation, settling on the market price analysis as the primary basis of calculation. Furthermore, in order to conduct a more comprehensive analysis, Ernst & Young employed the discounted cash flow analysis ("DCF analysis") and the comparable companies analysis to ascertain the appropriateness of the share price range resulting from the market price analysis.
The results derived from each method of analysis are as follows (the following calculation ranges for the Share Transfer Ratio show the calculation range of Meiji Dairies shares of common stock as against one share of Meiji Seika common stock).
| | Calculation Method | Share Transfer Ratio |
| (1) | Market price analysis | 1: 1.04 - 1.26 |
| (2) | DCF analysis | 1: 0.96 - 1.23 |
| (3) | Comparable companies analysis | 1: 1.03 - 1.55 |
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When conducting the calculation of Meiji Seika and Meiji Dairies in accordance with the market price analysis, Ernst & Young employed a valuation date of September 10, 2008, and analyzed the closing prices of the stock of both companies during the periods (i) from May 16, 2008, the business day immediately following the announcement of the respective financial results of Meiji Seika and Meiji Dairies for the year ended March 31, 2008 to the valuation date, (ii) one month immediately preceding such record date, and (iii) three months immediately preceding the valuation date. Ernst & Young also analyzed the correlation between the closing stock prices of both companies.
The profit projections of Meiji Seika and Meiji Dairies, which formed the basis of the verification of the appropriateness of the stock price levels derived from the market price analysis in accordance with the DCF analysis, were based on projections which were reasonably prepared pursuant to the best forecasts and judgments currently available to the respective managements of both companies.
Ernst & Young, when submitting their share transfer ratio calculation report ("Share Transfer Ratio Calculation Report 1") and conducting the analysis upon which such report was based, primarily used information furnished by Meiji Seika and Meiji Dairies and information that was publicly available in their original form. In using such information, Ernst & Young assumed the accuracy and completeness of all such information and materials, and did not independently verify such accuracy and completeness. Ernst & Young's Share Transfer Ratio Calculation Report 1 reflects information which was current as of September 10, 2008.
In order to conduct a comprehensive analysis of the market prices of the stock and the future earning capabilities, among other factors, of Meiji Seika and Meiji Dairies, after analyzing the terms and conditions of the Share Transfer, as well as the results of the financial and tax-related due diligence, PwC primarily used the market price analysis and the DCF analysis with respect to both companies. PwC also conducted a comparable companies analysis, among others, for reference purposes only.
The results derived from each of the principal methods of analysis are as follows (the following calculation ranges for the Share Transfer Ratio show the calculation range of Meiji Dairies shares of common stock as against one share of Meiji Seika common stock). |
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| | Calculation Method | Share Transfer Ratio |
| (1) | Market price analysis | 1: 1.15 - 1.21 |
| (2) | DCF analysis | 1: 1.11 - 1.22 |
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When conducting the market price analysis of Meiji Seika and Meiji Dairies, PwC employed a valuation date of September 10, 2008 and, after considering recent stock market transactions conducted with respect to the stock of both companies, PwC conducted its analyses using the average closing prices of the stock and the weighted average price per share during the periods (i) one month immediately preceding such valuation date, (ii) three months immediately preceding such valuation date, and (iii) six months immediately preceding such valuation date.
PwC, when submitting their share transfer ratio calculation report ("Share Transfer Ratio Calculation Report 2") and conducting the analysis upon which such report was based primarily relied upon information furnished by Meiji Seika and Meiji Dairies and information that was publicly available in their original form.
In using such information and materials, PwC assumed the accuracy and completeness of all such information and materials, and did not independently verify such accuracy and completeness. PwC did not independently value, appraise or assess the assets and liabilities (including any off-balance-sheet assets and liabilities, and other contingent liabilities) of both companies and their affiliated companies, and did not engage any third party institution for an appraisal or valuation assessment. In addition, PwC assumed that the information used to develop the financial forecasts of both companies was reasonably prepared based on the best estimates of and judgment by the management of both companies. PwC's Share Transfer Ratio Calculation Report 2 reflects information which was current as of September 10, 2008. |
| b. |
Background of Calculation
As described above, Meiji Seika and Meiji Dairies requested Ernst & Young and PwC, respectively, to conduct a calculation of the Share Transfer Ratio and with reference to the results of such third party appraisers' calculations, comprehensively considered such factors as the financial and asset conditions of each company and their future forecasts. As a result of numerous and thorough discussions with respect to the Share Transfer Ratio between the two companies, Meiji Seika and Meiji Dairies reached the conclusion and agreed that the Share Transfer Ratio set forth above is appropriate.
Meiji Seika received an opinion dated September 11, 2008 from Ernst & Young to the effect that in their impartial judgment as a corporate valuation specialist, based on the above preconditions and certain other conditions, the agreed-upon Share Transfer Ratio is appropriate for Meiji Seika shareholders. Meiji Dairies received an opinion dated September 11, 2008 from PwC to the effect that, based on the above preconditions and certain other conditions, the agreed-upon Share Transfer Ratio is appropriate, from a financial perspective, for Meiji Dairies shareholders. |
| c. |
Relationship with the Appraisers
Neither Ernst & Young nor PwC, the appraisers, is a related party of either Meiji Seika or Meiji Dairies. |
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| (4) |
Treatment of Stock Acquisition Rights and Bonds with Stock Acquisition Rights issued by Wholly-Owned Subsidiaries |
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Neither Meiji Seika nor Meiji Dairies has issued stock acquisition rights or bonds with stock acquisition rights. |
| (5) |
Treatment of Treasury Stock of Wholly-Owned Subsidiaries
Meiji Seika and Meiji Dairies will cancel shares of treasury stock owned by them, to the extent practicable, by the day preceding the Effective Date of Share Transfer. |
| (6) |
Application for Listing of the Joint Holding Company
Meiji Seika and Meiji Dairies will apply to list the shares of the newly-established Joint Holding Company on the Tokyo Stock Exchange. Shares of the Joint Holding Company are expected to be listed on April 1, 2009. Moreover, because Meiji Seika and Meiji Dairies will each become a wholly-owned subsidiary of the Joint Holding Company as a result of the Share Transfer, shares of Meiji Seika are scheduled to be delisted from the Tokyo Stock Exchange on March 26, 2009 and shares of Meiji Dairies are scheduled to be delisted from the Tokyo Stock Exchange and the Nagoya Stock Exchange on March 26, 2009. The actual date on which the shares will be delisted will be determined in accordance with the regulations of the Tokyo Stock Exchange for the shares of Meiji Seika and the Tokyo Stock Exchange and Nagoya Stock Exchange, respectively, for the shares of Meiji Dairies. |
| 5. |
Profile of Relevant Parties to Share Transfer |
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(16) Business Results for the Latest Three Fiscal Periods (consolidated) |
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| 7. | Framework for Promotion of the Management Integration |
| (1) |
Establishment of Integration Preparation Committee
The Integration Preparation Committee will be established in order to promote smooth and prompt preparations for the Management Integration and to realize the anticipated effects of the Management Integration at an early stage. The following working groups will be established under the Integration Preparation Committee to further consider any issues in each area. |
| (2) | Organizational Structure of Joint Holding Company (scheduled) |
This share exchange involves the securities of foreign companies. The offer is subject to disclosure requirements of a foreign country that are different from those of the United States. Financial information included in this document was excerpted from financial statements prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies.
It may be difficult for you to enforce your rights and any claim you may have arising under the U.S. federal securities laws, since the issuer is located in a foreign country, and all of its officers and directors are residents of a foreign country. You may not be able to sue a foreign company or its officers or directors in a foreign court for violations of the U.S. securities laws. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U.S. court's judgment.
This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. Meiji Seika Kaisha, Ltd. and Meiji Dairies Corporation assume no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.
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Notification with Respect to Management Integration of Meiji Seika Kaisha, Ltd. and Meiji Dairies Corporation through the Establishment of a Joint Holding Company (Share Transfer)
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