Kanebo Ltd, Japan's second-largest cosmetics company, said it called off a sale of its cosmetics unit to Kao Corp, and instead will ask a state-backed fund to invest in the business.
Kanebo will separate the unit making lipsticks, lotions and other cosmetics in May and apply to the Industrial Revitalization Corp of Japan (IRCJ) for assistance, the company said in a statement.
The state-run IRCJ will hold more than 50 percent of the venture, Kanebo said.
Kao, Japan's biggest toiletries maker, said the sale talks collapsed because of opposition from Tokyo-based Kanebo's labor union. The cosmetics unit is worth more than ?400 billion (US$3.8 billion), the Nihon Keizai newspaper reported earlier.
Kao was to hold a press conference yesterday evening in Tokyo to discuss the move, spokesman Kazuo Furuse said.
Kanebo's liabilities of ?682 billion exceeded assets by ?62.9 billion as of September, meaning its shareholder value is negative.
The company's shares fell 14.7 percent to ?110 in Tokyo, the biggest one-day decline since Sept. 13, 1985, after the Nihon Keizai reported talks ended because the two couldn't agree on terms.
Kao's cosmetics business had sales of ?75 billion for the year ended March 31 last year, while Kanebo's sales of cosmetics products were ?211 billion. Combining the business would have taken it closer to Shiseido Corp, Japan's largest cosmetics maker, which had revenue of ?482 billion during the same period.
Kao said on Jan. 31 it started talks to buy Kanebo's cosmetics business, abandoning an earlier merger plan that would have enabled Kanebo to retain a 51 percent stake.
Kao president Takuya Goto had said he wants to expand the company's product lineup in China by tapping Kanebo's sales outlets there.
Kanebo has been in China since 1992 and in December said it expects to double the 150 department stores it sells at in the world's most-populous nation.
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