Tokio Marine Capital to buy Japanese drug firm

By Alison Tudor, Asia Private Equity Correspondent

TOKYO, April 1 (Reuters) - Private equity firm Tokio Marine Capital Co Ltd said it was set to buy a Japanese dental products and generic drug firm being auctioned by Jafco Co Ltd (8595.T: Quote, Profile, Research, Stock Buzz).

Tokio Marine Capital, owned by Japanese insurer Millea Holdings (8766.T: Quote, Profile, Research, Stock Buzz), beat companies such as financial services group Orix Corp (8591.T: Quote, Profile, Research, Stock Buzz) to purchase the company, Showa Yakuhin Kako Co Ltd, with a bid of about 40 billion yen ($400 million) including debt, sources briefed on the deal said on Tuesday.

Tokio Marine Capital's consortium comprises Phoenix Capital, a Japanese private equity firm closely linked to Bank of Tokyo-Mitsubishi UFJ, the core banking unit of Mitsubishi UFJ Financial Group Inc (8306.T: Quote, Profile, Research, Stock Buzz), and AIG Japan, a member of American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz).

Jafco, a listed private equity and venture capital group, bought Showa Yakuhin Kako for 25.2 billion yen, according to its Web site, in one of Japan's largest transactions of 2004. The sources said that private equity firm CVC Asia Pacific also owned a small percentage of Showa Yakuhin Kako. CVC Asia Pacific's managing director in Japan and Jafco's investor relations department could not comment immediately on the deal.

Showa Yakuhin Kako, whose products include the painkiller acetaminophen, had sales of 8.8 billion yen for the year ended in December. The company has 238 employees.

Reuters first reported Jafco was selling Showa Yakuhin Kako in January. [ID:nTKF002962]

Japan's generic drug industry is expected to see increased merger and acquisition activity this year, spurred on by government moves to more aggressively promote the cheaper off-patent medicines.

The sector is still highly fragmented with small players. The biggest, Sawai Pharmaceutical Co Ltd, has annual sales of around 35 billion yen.