Kirin Group and Yakult Honsha to Form Business Alliance

Tokyo, June 15, 2005-Kirin Brewery Company, Limited ("Kirin Brewery"), Yakult Honsha Co., Ltd. ("Yakult Honsha"), and Kirin Beverage Corporation ("Kirin Beverage") today signed a memorandum of agreement to form a business alliance within Japan centering on health foods and functional foods .

The new alliance represents the progression of a business collaboration begun in 2003 between Yakult Honsha and Kirin Beverage, under which the two companies have been selling each other's products in their vending machines. The three companies in the new agreement share an expectation that by broadening the alliance between Kirin Group and Yakult Group, the companies can become more responsive to changes in the longer-term business environment, and create additional value.

Kirin Group and Yakult Group both position "food and health" as an important business area, and have developed beverages, foods and pharmaceutical operations. By making use of the research and development capabilities that the two groups have gained through their beverage, food, and pharmaceutical businesses, they will jointly endeavor to develop next-generation health foods and functional foods business. Moreover, in their existing beverage and food businesses they will begin reciprocal use of manufacturing and distribution functions as well as strengthen the current vending machine business collaboration between Yakult Honsha and Kirin Beverage.

In support of the new business alliance, Kirin Beverage will acquire 1.40% of the outstanding shares of Yakult Honsha for approximately \5.0 billion. Yakult Honsha will acquire 0.44% of the outstanding shares of Kirin Brewery for approximately \4.5 billion, and will also acquire 0.36% of the outstanding shares of Kirin Beverage for approximately \0.5 billion.

  Details regarding each of these points are as follows.

1.Joint operations in the growth areas of health foods and functional foods

The market for health foods and functional foods is expected to grow, supported by heightened consumer interest in health and an aging society.

Kirin Brewery is currently pursuing health food operations through Kirin Well-foods Co., Ltd., marketing products primarily through drug stores and mail order sales channels. Yakult Honsha has a strong food ingredient development capability centered on lactic acid bacteria, and utilizes a proprietary door-to-door 'Yakult Lady' sales system based on a network of regional sales companies. Yakult Honsha is also developing its sales to volume retailers. Kirin Beverage has an extensive sales network that includes volume retailers, convenience stores, vending machines and drug stores, and is developing products in the area of beverages for health-conscious consumers.

Under the new alliance, the companies will undertake joint research and development in areas such as functional ingredients to develop products based on the theme of "food and health". The companies will seek to expand sales of products through the shared use of their sales channels, and may consider establishing a joint operating company as they work to create a powerful value chain.

Currently, preparation is in progress to commence sales of Kirin Well-foods' health products through the Yakult Lady network, and the companies will investigate selling Yakult Honsha health drinks through Kirin Group sales channels.

Kirin Group's long-term vision is to provide people with the happiness of food and health, and this new alliance supports the Group's efforts to develop health foods and functional foods as a business pillar alongside alcohol beverages, soft drinks, and pharmaceuticals. Yakult Group is aiming to strengthen its business while expanding its sales channels by utilizing the strong technical knowledge and experience it has gained through its core health food and functional food business.

2.Increased efficiency in manufacturing and distribution

Under the agreement, the companies will seek to increase business efficiency and competitiveness by realizing manufacturing and distribution synergies, adopting initiatives such as outsourcing manufacturing, sharing logistics functions, and improving the distribution efficiency of chilled and dry products. One such initiative that has already been implemented is the production of Yakult brand products at Kirin Beverage subsidiary Koiwai Dairy Products' Tokyo plant, which began in June 2005.

3.Further strengthening of the existing vending machine business collaboration 

Yakult Honsha and Kirin Beverage will work to develop their brands by extending their existing collaboration regarding the reciprocal sale of each other's products in vending machines. The current agreement includes arrangements such as those in which Yakult sales companies handle the operation of Kirin Beverage's vending machines in certain areas, and Kirin Beverage handles the maintenance of certain vending machines owned by Yakult. By expanding this kind of collaboration the companies aim to further improve their vending machine businesses.

4.Establishment of a business alliance promotion structure

Each company in the agreement will appoint a business alliance promotion head, who is able to reflect management decisions and facilitate smooth and rapid progress in developing the business alliance. Through this business alliance, Kirin Brewery, Yakult Honsha and Kirin Beverage aim to contribute to the health and happiness of their customers, and create new value in the area of 'food and health'.

The new business alliance applies only within Japan, and will have no impact on existing business alliances between any of the three companies with other parties.

 Attached: Overview of participating companies and diagram of alliance structure

Back