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).

Tokio Marine Capital, owned by Japanese insurer Millea Holdings (8766.T), beat companies such as financial services group Orix Corp (8591.T) 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), and AIG Japan, a member of American International Group Inc (AIG.N).

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.

Fast-ageing Japan has a low rate of generic drug use, around 17 percent of volume compared with 63 percent in the United States.

"Japan does not have a mature generic drug market, so a niche player like Showa Yakuhin Kako is still attractive," said one of the sources.

"It is not like the over-the-counter market in the United States where they compete on price," he added.

The original field of bidders was very small, according to the sources, but the bidding was fiercely competitive.

Tokio Marine Capital is now talking to lenders to help it finance the leveraged buy-out and hopes to close the deal shortly. (Reporting by Alison Tudor; Editing by Chris Gallagher)