Sector News

Morinaga snack, dairy makers to combine in 2018

February 24, 2017
Food & Drink

Snack maker Morinaga & Co. and Morinaga Milk Industry will integrate around April 2018, teaming up to bolster research and development operations and share sales channels abroad, The Nikkei learned Thursday.

The Japanese companies, which share a common origin but split decades ago, are expected to move under a new holding company. Morinaga Milk President Michio Miyahara is eyed as chairman of the holding company, while Toru Arai, his counterpart at Morinaga & Co., is likely to become president. A corporate name will be chosen and details of a share transfer set at a later date.

Morinaga & Co. is Japan’s fourth-largest confectioner by sales, and Morinaga Milk the second-largest dairy producer. Based on guidance for the year ending March 31, sales by the combined entity would total around 785 billion yen ($6.97 billion). The pair’s combined market capitalization is around 445 billion yen, topping snack maker Ezaki Glico and approaching rival Calbee. The companies aim to merge and streamline their production, distribution and procurement operations, letting them take on Meiji Holdings, the leader in the snack and dairy markets that already benefits from synergies among those operations following a merger.

Business from health-conscious consumers has both Morinaga companies anticipating record net profit in fiscal 2016. The pair excel in high-value-added functional products that have potentially positive effects on health. Combining such facilities as research centers is expected to yield even more competitive offerings.

Overseas operations could get a boost as well. Morinaga & Co. sells its Hi-Chew fruit candies in the United States through such major retailers as Wal-Mart Stores. While most of Morinaga Milk’s sales overseas, other than those of powdered milk, are to the commercial sector, using its partner’s contacts could open the door to greater retail sales. The pair also could merge their brands abroad.

The two Morinaga companies have their roots in the first factory in Japan to make Western confections. The Morinaga & Co. name was adopted in 1912. In 1949, dairy operations were spun off into Morinaga Milk Industry. While the snack maker remains the dairy maker’s largest shareholder with a 10.5% stake and their headquarters occupy the same site in Tokyo, the companies have collaborated very little on business in the past.

Morinaga & Co.’s earnings have recovered in recent years after a long slump, thanks to management reforms such as cutbacks in unprofitable offerings since Arai was made president in 2013. A push overseas has helped as well, leading to an anticipated 11.5 billion yen in net profit this fiscal year — on par with Morinaga Milk’s 12 billion yen. This comeback is thought to have encouraged talks between the affiliates.

Japan’s food sector is undergoing broad realignment. Itoham Foods and Yonekyu Holdings merged to form Itoham Yonekyu Holdings in 2016, while Coca-Cola’s two leading bottlers in the country — Coca-Cola East Japan and Coca-Cola West — are to merge in April.

Source: Nikkei

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