Asahi Breweries Ltd. (TSE:2502) and leading tomato processor Kagome Co. (TSE:2811) said Tuesday that they have agreed to form a capital and business alliance.

As part of the deal, Asahi will pay 16.6 billion yen (US$137.6 million) to acquire new Kagome stock in a private placement of shares on Feb. 21. With a 10.5 per cent stake, the brewer will become Kagome's leading shareholder.

"In the future, it's possible we could own the others' shares," Kagome President Koji Kioka told reporters.

The capital tie-up suited both Asahi's agenda to boost its health-related business and Kagome's need to procure capital investment funds.

Kagome plans to spend 18 billion yen to convert its Ibaraki Prefecture plant, where it makes pasta sauce and other processed foods, into a facility for chilled products, including its lactic acid bacteria beverage, Labre.

In three years, when the plant is at full production, "annual shipments are likely to reach 50-60 billion yen," Kioka said.

As their first joint product, the companies in August will unveil an alcoholic beverage containing vegetables. For cold items, the duo will continue to share production facilities and consolidate distribution networks to reduce costs. On top of this, they will also link up for overseas operations, including in China, where the market is expanding.

"In three to four years, we'll have boosted operating profit by a total of 10 billion yen," said Asahi President Hitoshi Ogita.

February 7, 2007