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Wednesday, Jan. 17, 2007

Fujiya may seek Morinaga's help to regain its lost footing


Staff writer

Fujiya Co.'s product safety blunder is likely to make the confectioner financially vulnerable, prompting market speculation Tuesday it may seek deeper ties or a merger with candy maker Morinaga & Co.

News photo
Fujiya Co. President Rintaro Fujii (center) and other executives of the major confectioner apologize over product safety problems at a news conference Monday in Tokyo. KYODO PHOTO

Morinaga's shares climbed 10 yen Tuesday on the Tokyo Stock Exchange to close 3.27 percent higher at 316 yen on expectations that closer ties with Fujiya may give Morinaga a lift. Morinaga already has a stake in Fujiya.

Fujiya shares also jumped Tuesday, rising 7 yen to end at 199 yen.

Toru Arai, senior executive with Morinaga's investor and public relations division, denied the company is considering a merger with Fujiya.

"We, as a shareholder in Fujiya, will consider providing support if Fujiya asks," Arai said. "Such a comment seems to have led to speculation of a merger."

He said Fujiya has not asked for help and denied Morinaga has started internal discussions on the matter.

Morinaga holds 3.95 percent of Fujiya's outstanding shares and is the company's second-largest shareholder. The two already have a joint distribution agreement

Fujiya announced last Thursday the company had used milk and apple filling that had passed their expiration dates in its cream puffs and apple pies.

An in-house probe conducted over the weekend also revealed that Fujiya made cakes with old milk, cream, eggs and other ingredients in 18 instances over the past seven years at a plant in Saitama Prefecture.

The fiasco is a blow to Fujiya, but it is unclear how much or for how long the company will suffer as a result.

Fujiya has suspended operations at all five of its factories and about 700 confectionary shops and restaurants.

Confections are Fujiya's main money-maker, accounting for about 30 percent of its sales. While its outlets are closed, it is forecast to lose 60 million yen to 70 million yen in revenues a day on weekdays and around 100 million yen on weekends and holidays.

The factories and franchise stores are expected to resume operation no sooner than early February.

With losses snowballing, Fujiya may go bankrupt if Resona Bank, its main bank, refuses to extend credit, said Kanji Tanimoto, a professor of commerce and management at Hitotsubashi University and expert on corporate compliance.

Tanimoto said efforts by Fujiya to save on costs are behind the safety problems, something that will ultimately cost it dearly.

"Once a food-related company is hit by this kind of scandal, it is hard to regain consumer trust since they may never want to buy its product again."

Tanimoto criticized Fujiya for failing to learn from the mistakes made by Snow Brand Milk Products Co., in which tainted milk sickened 14,000 people in 2000.

To prevent a recurrence, Tanimoto said the confectioner should take the time to thoroughly investigate how and why it used old ingredients for its sweets, and improve its corporate compliance system.

"The management should consider separating themselves from the founder's family" by appointing outside board members to improve monitoring, Tanimoto said.

Rintaro Fujii, Fujiya's outgoing president, is a member of the founding family, which has dominated the firm since it was founded in 1910.

"The president's resignation will not put an end to the company's problems," Tanimoto warned.



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