Notification with Respect to Commencement of Tender Offer for Shares of Unicharm PetCare Corporation

Transcription

1 FOR IMMEDIATE RELEASE April 30, 2010 Company Name: Unicharm Corporation Name of Representative: Takahisa Takahara President and CEO (Code: 8113, Tokyo Stock Exchange) Contact: Atsushi Iwata Executive Officer Legal & Intellectual Property Division (Tel: ) Notification with Respect to Commencement of Tender Offer for Shares of Unicharm PetCare Corporation Unicharm Corporation (the Tender Offeror or the Company ) announces that it resolved at its Board of Directors meeting held on April 30, 2010 to acquire the shares of Unicharm PetCare Corporation (Code: 2059, the first section of the Tokyo Stock Exchange; the Target ) through a tender offer (the Tender Offer ) under the Financial Instruments and Exchange Act (Act No. 25 of 1948 including subsequent amendments and hereinafter referred to as the Act ). In addition, the Board of Directors also resolved that, subject to the failure of the Tender Offer as a condition subsequent, the Company as a surviving company would consolidate the Target as extinct company by way of absorption-type merger with cash consideration (the Cash-out Merger (effective on September 1, 2010) and the Consideration for the Merger for the cash to be paid as consideration). The Company and the Target entered into a merger agreement (the Merger Agreement ) effective today subject to the failure of the Tender Offer as a condition subsequent. The details of the Merger Agreement are referred to in the Notice of Entering into a Merger Agreement between Unicharm Corporation and Unicharm PetCare Corporation with the Failure of a Tender Offer as a Condition Subsequent separately announced as of April 30, 2010 and the Extraordinary Report. 1. Purpose of the Tender Offer (1) Outline of the Tender Offer The Tender Offeror holds the Target as a consolidated subsidiary on the basis of effective control standard by holding 10,840,000 common shares of the Target (36.92% of 29,360,000 of the total outstanding shares of the Target as of February 12, 2010 (the Ownership ) (rounded to the nearest hundredths decimal point, this calculation method is applicable to all the calculations unless otherwise instructed; in addition, the number of total outstanding shares of the Target is based on the financial results for the third quarter for the year ended March 31, 2010 (the 32nd term) (submitted on February 12, 2010) (the 32nd Third Quarter Reports ). The Company decided that the Tender Offer to acquire all the common shares outstanding of the Target (excluding common shares of the Target already held by the Company and treasury shares held by the Target) for the purpose of 1

2 integrating the two business entities. The Company as a surviving company will consolidate the Target by way of Cash-out Merger as stipulated in (4) Policy on Matters including Organizational Restructuring after the Tender Offer (Matters concerning the so-called Two-Step Acquisition) subject to the failure of the Tender Offer as a condition subsequent. With regard to the Tender Offer, the Company obtained the consent to the Tender Offer and the Cash-out Merger from Mr. Takahisa Takahara, President and CEO of the Company (holding: 60,000 shares and Portion; 0.20%). In the event that the total number of shares tendered in the Tender Offer (the Tendered Shares ) by shareholders who accept the Tender Offer or Tender Shares to be purchased (the Tendering Shareholders ) is less than 8,640,800 shares, none of the Tendered Shares will be purchased. Such minimum number of shares to be purchased in the Tender Offer was set at the sum of the shares (8,640,800 shares), represented by 85,808 units, which is equivalent to approximately 50.1% of the voting rights (171,273 units) that represents the number of shares calculated by subtracting 1,332,625 shares of the treasury shares and the number of Target s shares held by the Company as of this date (10,840,000 shares) and the shares held by Mr. Takahisa Takahara as of this date (60,000 shares) from the total outstanding shares (29,360,000 shares,) in order to respect the will of the shareholders of the Target. Therefore, in the event of not obtaining consent from a majority of shareholders of the Target excluding the Company and Mr. Takahisa Takahara, the Tender Offer will failed. By setting the minimum number of shares to be purchased in the Tender Offer, 8,640,800 shares, the Company will hold more than 19,480,800 shares (voting rights: 194,808 units) of the Target adding the current ownership of 10,840,000 shares after the Tender Offer, the Company s ownership of voting rights (the Voting Rights Owned by the Company ) will be more than 69.51% of 280,273 voting rights, represented by 28,027,375 shares, the number of shares calculated by deducting 1,332,625 shares of the treasury shares held as of December 31, 2009 (based on the information on the 32nd Third Quarter Reports) from the total number of the Target s outstanding shares as of February 12, 2010, 29,360,000 shares (based on the information on the 32nd Third Quarter Reports). In addition, as no maximum number of shares is set in the Tender Offer, the Tendered Shares will be purchased if the total number of Tendered Shares exceeds the minimum number of shares to be purchased. The Company will finance a part of the required funds for the Tender Offer and the Cash-out Merger (60 billion yen) from the Bank of Tokyo-Mitsubishi UFJ subject to the completion of the Tender Offer. The remaining amount will be financed from the savings of the Company According to the Target, the Target concluded that the Tender Offer and the following Cash-out Merger would contribute to realize the potential synergy among the Company group in a prompt manner and increase the value of Target s pet care business; therefore, the price of the Tender Offer (the Tender Offer Price ) and the Consideration for the Merger are reasonable. The Tender Offer and the following Cash-out Merger would provide an opportunity for a sale of the Target s stock at a reasonable price, judging from the consideration on strategic significance of the Tender Offer and the Cash-out Merger as described from (i.) to (v.) of (2) Decision-making Process led to the Tender Offer and Management Policy after the Tender Offer, the reports from the Independent Committee as described in 2 Establishment of the Independent Committee of the Target of (3) Measures to Ensure the Fairness of the Tender Offer including Measures to Ensure the 2

3 Fairness of the Tender Offer Price and to Avoid Conflicts of Interest, as well as the valuation report concerning the Target s equity value provided by Nikko Cordial Securities Inc. ( Nikko Cordial Securities ) ( Target Valuation Report ) The board of directors of the Target passed the resolution for the Tender Offer and made a recommendation to the shareholders of the Target to accept the Tender Offer. In addition, it is mentioned such resolution was unanimously approved by the directors who do not have conflicts of interest against the Target. It is also mentioned with regards to the method of resolving at the Board of Directors meeting, that the Target took a measure to avoid the structural conflict as it is described in 4 Approval from All the Directors and Auditors free from Interest of (3) Measures to Ensure the Fairness of the Tender Offer including Measures to Ensure the Fairness of the Tender Offer Price and to Avoid Conflicts of Interest (2) Decision-making Process led to the Tender Offer and Management Policy after the Tender Offer The Company and the group companies consisting of subsidiaries and related companies are under the corporate philosophy of NOLA&DOLA (Necessity of Life with Activities & Dreams of Life with Activities), mainly engaged in the manufacture and distribution of baby care products, feminine care products and pet care products by making full use of processing and forming technologies of non-woven fabrics and absorbent materials which the Company has long developed since its establishment. The Company group has focused on business renovation in the domestic market and business expansion in the overseas markets mainly in Asia, as set out in the Global 10, new Medium-Term Management Plan formulated in 2008, and currently provides diapers and feminine care products for customers in more than 80 countries around the world. However, the business environment has become increasingly uncertain on the economic growth in the Asian countries where it used to show solid growth due to severe economic conditions around the globe. In spite of these adverse circumstances, the Company group will protect its No.1 market share position mainly in Asian countries and continue to promote the corporate renovation with an aim to attain a global 10% share by developing new markets. The Company and its group started the manufacturing and distribution of pet care-related products in In October 1998, the Company transferred its pet care-related business operation to Uni-Taisei Corporation, a then subsidiary of the Company and the predecessor of the Target, based on the policy of concentration of management resources on the absorbent materials business. In October 2004, seeking the means to finance growth capital over the course of its management reform for the pet care-related businesses, the Target became the first pet care-related manufacturer to be a listed company. In September 2005, it was moved up to the first section of the Tokyo Stock Exchange Group, Inc. (the Tokyo Stock Exchange ). The Company group regards the pet care business as a promising field thanks to the expected future growth of the domestic demand for pet care products as pets draw more attention as healers in the modern society facing a dwindling birthrate, an aging population, late marriages, and the growing number of negative news on the media and also as a consequence of the drastic improvement of the pet-owning environment, such as the large increase in the number of apartments which allow tenants to keep pets. Under these circumstances, it was concluded that the maximization of synergy effects with the 3

4 Company, rather than the operation with the Target s independent management resources, would be the best way to further increase the speed of growth and expansion in the promising domestic pet care business. Furthermore, the Company group expects that the global trend of market expansion for pet care products will continue given the market size of North America and Europe which are much larger than that of Japan and the growing emerging markets. Especially in China, the trend of market expansion appears prominent along with the improvement of the quality of life of the middle class and urban population in addition to the wealthy. Under these circumstances, the Company group plans to develop its business, mainly in the pet care business, in a proactive manner by taking advantage of the Target s strength in technologies in high-end products and non-woven fabrics processing and the Company s resources. The Target, as a consolidated subsidiary of the Company, has independently run its business utilizing a certain degree of synergy between the Company and the Target under a certain level of soft governance as a listed company. The Target is currently a leader of the domestic pet care-related market by a narrow margin; however, some oligopoly is expected to be developed in this market as the aggregate market share of the top five companies is still less than 50%. Besides, since all the major global companies in the pet care-related business have entered this market, further fierce competition is expected in the process of market oligopolization in the future. The Target thus needs to gain the absolute No.1 market share as soon as possible under such circumstances. In addition, as consumers are increasingly demanding high-quality and low-price pet care-related products under the recent economic environment of sluggish consumption and deflation, the Target needs to promptly reconstruct and reinforce its operating base including its ability, product development and purchase negotiation, and headquarters operation in order to ensure the future development in the domestic pet care-related market. Therefore, the Company and the Target had a series of discussions and examinations about several measures with an aim to improve the corporate value of both parties since January In consequence, the Company reached the conclusion that it is necessary to ensure swift and flexible management judgment, to optimize corporate resources including the effective use of human resources at the whole-group level, and to expand the business through additional strategic investments jointly made by the Company and the Target in order to further strengthen the domestic markets, and to expand the overseas business where the future growth is expected for both companies. The Company believes that the merger of the two companies would be the best way based on the judgment that it is necessary to operate the business as a single entity in order to realize synergy for both companies as quickly as possible. It seems that the Tender Offer and business integration with the Company have enough strategic significance for the Target because of the following expected synergy effects: i. to ensure the mobility and flexibility as a member of the whole group of the Company including the domestic and overseas production sites, logistics network and ability of purchase negotiation of the Company ii. to optimize the management resources of the Company group as a whole including the utilization of human resources at home and abroad with regard to product development, marketing, and headquarters operation 4

5 iii. to enable the safe and prompt global operation with an access to the Company s platform, such as local offices and distribution channels, in the overseas strategy iv. to enable the additional strategic investment through the funding capability of the Company group v. to reduce listing-maintenance costs and to eliminate potential conflicts of interest concerning the parent-subsidiary listings As a result, the board of directors of the Company passed a resolution for commencing the Tender Offer and for entering into the Merger Agreement, which was executed between the Company and the Target (The details of Merger Agreement are referred to in the Notice of Entering into a Merger Agreement between Unicharm Corporation and Unicharm PetCare Corporation with the Failure of a Tender Offer as a Condition Subsequent separately announced by the Company as of April 30 and the Extraordinary Report disclosed by the Target). The Company intends to respect the autonomy and independence of the Target s business and to pay careful attention to the Target s employees and management by introducing an in-house company system, and also keep the Unicharm Pet Care brand in consideration of its presence in the market and economic value after the business integration with the Target. (3) Measures to Ensure the Fairness of the Tender Offer including Measures to Ensure the Fairness of the Tender Offer Price and to Avoid Conflicts of Interest In consideration of the fact that the Target is a wholly-owned subsidiary of the Company, executed the measures to ensure the fairness of a series of transactions and its conditions concerning the Tender Offer and Cash-out Merger in order to ensure the fairness of determining the purchase price in the Tender Offer (the Tender Offer Price ), to avoid arbitrariness in the decision-making process, the Company took the following measures (the measures executed by the Target in the description below are based on the explanations from the Target); 1 Obtaining the Valuation Report from the Independent Appraisers The Company requested Morgan Stanley Japan Securities Co., Ltd. ( Morgan Stanley ), the financial advisor which is independent from the Company and the Target, to evaluate the equity value of the Target for the purpose of providing the Company with a basis to determine the Tender Offer Price in order to ensure the fairness thereof. Morgan Stanley conducted a valuation analysis of the Target s equity value through a share price performance analysis, comparable companies analysis and discounted cash flow ( DCF ) analysis and then delivered the valuation report ( Tender Offeror Valuation Report ) to the Company (The Company has not obtained any opinion on the fairness of the Tender Offer Price (Fairness Opinion) from Morgan Stanley). A summary of the range of per share values of the Target for each valuation method conducted by Morgan Stanley is as follows; 5

6 Valuation Method Share Price Performance Analysis Comparable Companies Analysis DCF Analysis Range of the Per Share Value of the Target from 2,977 yen to 3,115 yen from 2,652 yen to 3,346 yen from 3,352 yen to 4,732 yen The share price performance analysis resulted in a per share value of the Target ranging from 2,977 to 3,115 yen based on the closing price of the Target on the First Section of the Tokyo Stock Exchange on the Base Date (April 28, 2010) and the average closing price thereof for the latest one month (3,061 yen, rounded to the nearest yen), three months (2,977 yen, rounded to the nearest yen) and six months (3,007 yen, rounded to the nearest yen) prior to the Base Date. The comparable companies analysis resulted in a per share value of the Target ranging from 2,652 to 3,346 yen by evaluating the equity value of the Target through a comparison with listed companies operating a relatively similar business to that of the Target based on their financial indexes including share price and profitability. The DCF analysis resulted in a per share value of the Target ranging from 3,352 to 4,732 yen by analyzing the corporate value and equity value using the present value of free cash flows which the Target is expected to produce in the future discounted at a certain level of discount rate, based on the earning forecasts prepared by the Company after the fiscal year ending in March 2012, taking into consideration various factors including the management plan obtained from the Target, latest business performance and information disclosed to the public and synergy effects expected to be generated from the business integration. Morgan Stanley estimated the per share value of the Target based on the financial projections prepared by the Company by making adjustments to the Target s business projections and information obtained from the Target, and assumed and relied upon the accuracy or completeness of such material and information without independent verification of the accuracy or completeness thereof. Morgan Stanley has not independently evaluated or appraised the assets and liabilities (including contingent liabilities) of the Target, and has not requested any such evaluations or appraisals from a third party. Morgan Stanley assumed the Tender Offer and the Cash-out Merger will be duly executed in accordance with its terms, that the tax consequences will not be different from the estimates provided to Morgan Stanley, that all necessary approvals and consents from relevant governmental and regulatory agencies will be obtained to execute the Tender Offer and the Cash-out Merger without any adverse effects on the expected return, and that Morgan Stanley is not obliged to assess such matters. Morgan Stanley has not taken into consideration any impact of legal, accounting and tax consequences on the Company and the Target that may result from the Tender Offer and the Cash-out Merger. The Company, by reference to the results from each calculation method described in the Tender Offeror Valuation Report provided by Morgan Stanley, comprehensively in consideration of the examples of premiums implied by the Tender Offer price at the time of its announcement in precedent tender offers for shares by entities other than the issuer, whether the board of directors of the Target would approve of the Tender Offer, the 6

7 market share price performance of the common shares of the Target, and the expected number of subscriptions to the Tender Offer, and based on the results of discussion and negotiation with the Target, eventually determined the Tender Offer Price as 3,825 yen by the resolution of the board of directors held today. The Tender Offer Price 3,825 yen per share represents a premium of 22.8% (rounded to the first decimal place) on the closing price of 3,315 yen of the common share of the Target on the First Section of the Tokyo Stock Exchange on April 28, 2010, 25.0% (rounded to the first decimal place) on the simple average of 3,061 yen (rounded to the nearest yen) of the closing share price of the Target for the past month (from March 29, 2010 to April 28, 2010), 28.5% (rounded to the first decimal place) on the simple average of 2,977 yen (rounded to the nearest yen) of the closing share price of the Target for the past three months (from January 29, 2010 to April 28, 2010) and 27.2% (rounded to the first decimal place) on the simple average of 3,007 yen (rounded to the nearest yen) of the closing share price of the Target for the past six months (from October 29, 2009 to April 28, 2010). On the other hand, the Target said that they had appointed Nikko Cordial Securities, a financial advisor independent from the Company and the Target, as a third-party valuation institution and asked them to analyze the equity value of the Target for the reference over the course of deciding an opinion on the Tender Offer and obtained the Target Valuation Report from Nikko Cordial Securities on April 27, 2010 (However, it is understood that the Target has not obtained a Fairness Opinion from Nikko Cordial Securities). According to the Target, the equity value of the Target was analyzed based on the financial information and estimates provided by the Target under certain premises and conditions through the methods of share price performance and DCF in the Target Valuation Report. In addition, according to the Target, Mr. Gunpei Futagami, President of the Target who gave informal consent to assume the post of director of the Company with a condition of an approval from shareholders of the Company at the 50th Annual Meeting of Shareholders scheduled on June 24, 2010, was involved in, as an essential member, in the drafting of the management plan which was provided to Nikko Cordial Securities to evaluate the equity value; however, such management plan and the fact which was based thereon did not vary greatly from the former ones and any drastic increase or decrease in profit was not expected. According to the Target, the equity value of the Target evaluated through each methods in the Target Valuation Report was as follows: By the method of stock price performance analysis, the equity value is 2,966~3,038 yen: by the DCF analysis, the equity value is 3,356~4,043 yen. The Target said that its board of directors, based on advice obtained from Nikko Cordial Securities as the financial advisor and Yanagida & Partners as the legal advisor, has had a series of careful examination in consideration of the contents of the Target Valuation Report, conditions of the Cash-out Merger, possibility of utilizing the Company s corporate resources, business and financial synergy effects that could be potentially realized from the business integration and with respect to the reports from the third-party commission established by the board of directors itself; as a result, it resolved, at a meeting held today, the approval for the Tender Offer and the recommendation to their shareholders of tendering shares based on the judgment that 7

8 the business integration with the Company by way of the Tender Offer would contribute to the improvement of the Target s corporate value and benefits to be commonly enjoyed among shareholders, the conditions of the Tender Offer Price and others were reasonable and the Tender Offer would give full attention to the protection of minority shareholders interest and provide an opportunity for selling the Target s equity at a reasonable price. (Note 1) Morgan Stanley ( MS ), the U.S. parent company of Morgan Stanley Japan Securities Co., Ltd, and Mitsubishi UFJ Financial Group, Inc. ( MUFG ), as announced in the press release dated March 30, 2010, have entered into definitive agreements to integrate their securities operations in Japan (the "Integration"). Pursuant to the Integration, MS and MUFG will jointly establish two securities firms: (i) Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. ( MUMSS ) and (ii) Morgan Stanley MUFG Securities Co., Ltd. as of May 1, 2010, and the investment banking operations of Morgan Stanley Japan Securities Co., Ltd., which acts as Financial Advisor, are contemplated to be entirely transferred to MUMSS through a corporate demerger (absorption type demerger) on such date. 2 Establishment of the Independent Committee of the Target The Target mentioned that on April 5, its board of directors passed a resolution that it would establish an independent committee ( Independent Committee ) in order to mitigate the conflicts of interest and arbitrary decisions to ensure the fairness of the Tender Offer Price, Consideration for Merger, other conditions, and the fair process during the decision-making process of the Target and that it would consult the Independent Committee in the examination of the Tender Offer Price, Consideration for Merger and details of the opinion to be made on the Tender Offer. The Target also mentioned that 3 individuals, Mr. Shiro Bando (Lawyer, Representative of Bando Sogo Horitsu Jimusho), Mr. Seijun Fujita (Certified Public Accountant/Tax Accountant, Partner/Representative of Shinsoh Audit Corporation), Mr. Susumu Miyoshi (Former Senior Managing Executive Officer of Japan Airlines Corporation), were appointed as committee members as objectively and practically independent from the Company and the Target. According to the Target, the Independent Committee met several times from April 5 to April 28, 2010 to discuss the aforementioned consideration points and to obtain necessary information regarding the details and contents of the potential increase of corporate value with respect to the Tender Offer and Cash-out Merger from the Target s advisors, and to examine the information submitted by the Target s board of directors with respect to the Tender Offer and Cash-out Merger. Furthermore, the Independent Committee had question and answer sessions with personnel of the Company and Morgan Stanley. In addition, the Independent Committee referred to the Valuation Report prepared for the Target and had a question and answer session and explanation about the Target s valuation by the Target s financial advisor, Nikko Cordial Securities. Consequently, after careful discussion, on April 28, 2010, the Independent Committee unanimously approved the report to the board of directors which concluded that it was reasonable for the board of directors of the Target to express the consent for the Tender Offer and following Cash-out Merger, because the Independent Committee considered it as reasonable to judge that the Tender Offer and following Cash-out Merger would contribute to the improvement of the Target s corporate value, shareholders profits are carefully considered through a fair process, and the Tender Offer Price and Consideration for the Merger are appropriate. 8

9 3 Opinion from Legal Advisors The Target mentioned that its board of directors appointed Yanagida & Partners as a legal advisor in order to ensure the transparency and objectivity in the decision-making process and discussed and examined whether the expression of approval of the Tender Offer and execution of the Merger Agreement would contribute to the improvement of the corporate value of the Target in a careful manner, receiving legal advice with regard to the method and process of decision-making of the board of directors and other points to remember including procedures for the Tender Offer and execution of the Merger Agreement. 4 Approval from All the Directors and Auditors free from Interest The Target mentioned that the meeting of the board of directors held today passed the unanimous approval for the Tender Offer to express its opinion supporting the Tender Offer and recommending shareholders of the Target to accept the Tender Offer and for the execution of the Merger Agreement. In addition, the Target mentioned that auditors who have no conflicts of interest expressed that they have no objection that the board of directors support the Tender Offer and recommend shareholders of the Target to accept the Tender Offer and for the execution of the Merger Agreement. The Target mentioned that outside directors, Mr. Takamitsu Igaue and Mr. Hironori Nomura, who are currently doubling as employees of the Company (treated as executive officers), due to conflicts of interest, did not attend the discussion and resolution and that they had not participated in the discussion and negotiation on behalf of the Company. Moreover, Mr. Yasushi Akita, an auditor, is also doubling as executive officer of the Company, did not attend the meeting of the board of directors due to conflicts of interest. The Target mentioned that, to mitigate conflicts of interest, prior to the discussion and resolution, Mr. Hitomitsu Kodama, Mr. Hirohiko Muromachi and all auditors excluding Mr. Yasushi Akita attended the discussion and only Mr. Hiromitsu Kodama and Mr. Hirohiko Muromachi attended the resolution, as Mr. Gunpei Futagami and Mr. Yoshiro Ando have agreed to be appointed as directors of the Company subject to the approval at the Company s 50th general shareholders meeting to be held on June 24, And then, from a viewpoint of constituting a quorum pursuant to the Article 369 of Company Act, Mr. Gunpei Futagami, Mr. Yoshiro Ando, Mr. Hiromitsu Kodama, Mr. Hirohiko Muromachi and all auditors excluding Mr. Yasushi Akita attended the discussion and Mr. Gunpei Futagami, Mr. Yoshiro Ando, Mr. Hiromitsu Kodama and Mr. Hirohiko Muromachi attended the resolution. The Target mentioned that, consequently, in every resolution, the resolution was passed by unanimous approval from the participating members of the board of directors for the Tender Offer to express its opinion supporting the Tender Offer and recommending shareholders of the Target to accept the Tender Offer and for the execution of the Merger Agreement. Furthermore, the Target mentioned that auditors who have no conflicts of interest expressed that they have no objection that the board of directors support the Tender Offer and recommend shareholders of the Target to accept the Tender Offer and for the execution of the Merger Agreement. 5 Measures to Provide Other Purchasers with an Opportunity to Purchase Shares 9

10 The Company set the period for the Tender Offer (the Tender Offer Period ) at 30 business days, longer than 20 business days as stipulated by laws and regulations. By setting the Tender Offer Period comparatively long, the Company will ensure the fairness of the Tender Offer Price by providing the Target s shareholders with an appropriate opportunity to determine whether to accept the Tender Offer and providing potential counter-purchasers an opportunity for purchasing shares. Besides, the Company and the Target have no agreement which restricts the Target to contact such counter-purchasers, such as an agreement including transaction-protection clauses which prohibit any contact between the Target and counter purchasers in order to ensure the fairness of the Tender Offer. 6 Setting the Minimum Number of Shares to be Purchased The Company set the minimum number of shares to be purchased such that the Tender Offer should not be completed in the event that the number of Tendered Shares is less than 8,640,800 shares; calculated by subtracting the number of Target s shares held by the Company as of this date 10,840,000 shares from 19,480,800 shares which represents about 69.51% (194,808 units) of 280,273 voting rights, represented by 28,027,375 shares, the number of shares calculated by subtracting 1,332,625 shares of the treasury shares held from the total outstanding shares (29,360,000 shares). The above minimum number of shares to be purchased is 8,580,800 shares, which is represented by approximately 50.1% (85,808 units) of 171,273 voting shares, representing the number of shares after subtracting 1,332,625 shares of the treasury stocks, 60,000 shares under the preexisting ownership of Mr. Takahisa Takahara, and 10,840,000 shares under the preexisting ownership of the Company from the total outstanding shares of the Target 29,360,000 shares. This way, the Company will respect the will of the Target s shareholders as no common stock of the Target is to be purchased in the Tender Offer in the event that a majority of the Target s shareholders, other than the Company and Mr. Takahisa Takahara, do not approve thereof. (4) Policy on Matters including Organizational Restructuring after the Tender Offer (Matters concerning the so-called Two-step Acquisition) The Company considers it is necessary to ensure the mobility and flexibility of management and to allocate corporate resources in a careful and adequate manner not only within the framework just reaching the Target but also that of the whole Company group in order to optimize the management efficiency of the Company and the Target. If the Tender Offer is completed, the Company s ownership of voting rights will be 69.51% or more. The Company plans to implement an absorption-type merger among the Target s shareholders who would not accept the Tender Offer, such as paying cash consideration in exchange for the Target s shares subject to the failure of the Tender Offer as a condition subsequent. In order to implement a prompt reorganization, the Company enters into the Merger Agreement with the Target today, and will execute the Cash-out Merger subject to the completion of the Tender Offer, and the approval of the Merger Agreement obtained at the general shareholders meeting of the Company and the Target (however, in the event that the Cash-out Merger fulfills the requirements of short-form merger, no resolution may 10

11 be adopted in the Target s shareholders meeting) and delivers the consideration for the Merger to the shareholders stated or recorded in the shareholders list of the Target, the extinct company, just prior to the entering into force of the Cash-out Merger (excluding the Company and the Target) The amount paid per share of the Target is evaluated based on the Tender Offer Price and is to be the same as the Tender Offer Price (3,825 yen). The shareholders who execute the right for share purchase pursuant to Article 785 of the Company Act). The shareholders of the Company, the surviving company, and those of the Target, the extinct company in the Cash-out Merger, may execute the right for share purchase against the Company or the Target pursuant to Article 797 or 785 of the Company Act and other provisions in the relevant laws, respectively. The Tender Offer is not intended to solicit shareholders of the Company and the Target for executing their voting rights at any shareholders meeting to be convened pursuant to the procedures above described. Each shareholder is also asked to consult his/her/its own tax specialist regarding taxation matters related to any application for the Tender Offer, sales of the shares of the Target before and after the delisting thereof, receipt of cash with regard to the Cash-out Merger and underwriting of the shares of the Target based on the execution of the share purchase demand with regard to the Cash-out Merger. The details of the Cash-out Merger are referred to in the Extraordinary Report and the Notice of Entering into a Merger Agreement between Unicharm Corporation and Unicharm PetCare Corporation with the Failure of a Tender Offer as a Condition Subsequent separately announced by the Company as of April 30. In addition, the schedule regarding the Merger is as shown below; March 31, 2010 April 30, 2010 April 30, 2010 April 30, 2010 (Scheduled) May 6, 2010 (Scheduled)) June 16, 2010 (Scheduled) June 24, 2010 (Scheduled) June 29, 2010 (Scheduled) June 29, 2010 (Scheduled) July 30, 2010 (Scheduled) September 1, 2010 (Scheduled) October 29, 2010 (Scheduled) Record Date of Annual Meeting of Shareholders (the Company and the Target) Board of Directors Meeting (the Company and the Target) Contract Day of the Merger (the Company and the Target) Assignment of the Target shares to the watchlist Commencement date of the Tender Offer (the Company) Closing date of the Tender Offer (the Company) Annual Meeting of Shareholders (the Company) Annual Meeting of Shareholders (the Target) Assignment of the Target shares to the delisting post Delisting date for the Target Effective date of the Merger Commencement date of settlement 11

12 In the event that the Cash-out Merger fulfills the requirements of short-form merger, no resolution may be adopted in the Target s shareholders meeting under the Company Act Article 784 paragraph 1. The announcement of the short-form merger will be held at the same time of the announcement of results of the Tender Offer on June 17, (5) Likelihood of a Delisting of Shares and the Reasons Thereof 1 Likelihood of a delisting shares and the reasons thereof The common stock of the Target is, currently listed on the First Section of the Tokyo Stock Exchange. However, as the Company has not set the maximum number of shares to be purchased, the shares of the Target may be delisted through specified procedures pursuant to the delisting standards of the Tokyo Stock Exchange depending on the result of the Tender Offer. Even if such delisting standards are not met upon completion of the Tender Offer, as described in (4) Policy on Matters including Organizational Restructuring after the Tender Offer (Matters concerning the so-called Two-step Acquisition), the common shares of the Target will be delisted on July 30, 2010 after being assigned as Securities under Supervision on April 30, 2010 and as Securities to be put on delisting post on June 29, 2010 by the Tokyo Stock Exchange. After the delisting, the common shares of the Target will not be able to be traded on the Tokyo Stock Exchange. 2 The reason for aiming to delisting and the progress of examination of alternative measures The Target, as a consolidated subsidiary of the Company, has independently run its business with utilizing limited synergy between the Company and the Target under a certain level of soft governance as the listed company. The Target is currently a leader of the domestic pet care-related market by a narrow margin; however, the state of oligopoly is expected to be developed in this market as the aggregate market share of the top five companies is still less than 50%. Besides, since all the major global companies in the pet care-related business have entered in this market, further fierce competition is expected in the process of market oligopolization in the future. The Target thus needs to gain the absolute No.1 market share immediately under such circumstances. In addition, as consumers are increasingly demanding for high-quality and low-price pet care-related products under the economic environment of sluggish consumption and deflation, the Target needs to promptly reconstruct and reinforce the operating base including the ability of marketing, product development and purchase negotiation, and headquarters operation in order to ensure the future development in the domestic pet care-related market. Therefore, the Company and the Target had a series of discussions and examinations about several measures with an aim to improve the corporate value of both parties since January In consequence, the Company reached the conclusion that it is necessary to ensure swift and flexible management judgment, to optimize corporate resources including the effective use of human resources at the whole-group level, and to expand the business through additional strategic investments jointly made by the Company and the Target in order to further strengthen the domestic markets, and to expand the overseas business where the future growth is expected for both companies. The Company believes that the merger of the two companies would be the best way based on the judgment it is necessary to operate 12

13 the business as a single entity to realize synergy for both companies as quickly as possible. It seems that the Tender Offer and the Cash-out Merger with Company have enough strategic significance for the Target because of the following expected synergy effects: i. to ensure the mobility and flexibility as a member of the whole group of the Company including the domestic and overseas production sites, logistics network and ability of purchase negotiation of the Company ii. to optimize the management resources of the Company group as a whole including the utilization of human resources at home and abroad with regard to product development, marketing,, and headquarters operation iii. to enable the safe and prompt global operation with an access to the Company s platform, such as local offices and distribution channels, in the overseas strategy iv. to enable the additional strategic investment through funding capability of the Company group v. to reduce listing-maintenance costs and to eliminate potential conflicts of interest concerning the parent-subsidiary listings As a result of executing the Tender Offer and Cash-out Merger by the Company with an aim to integrate the business with the Target, the shares of the Target will be delisted as described in above 1 Likelihood of a delisting shares and the reasons thereof. With respect to the business integration of the Company and the Target, to avoid dilution of existing shareholders of the Company, and to take advantage of low cost debt financing capacity as well as to avoid the cumbersome filing requirements imposed by the U.S. Securities and Exchange Commission, the Company and the Target determined to pay cash consideration equal to the Tender Offer Price to the shareholders who did not accept the Tender Offer as the opportunity to earn the return of their investment in a prompt manner. In the case that the Target s stock is delisted, such stocks cannot be traded but for the Target s shareholders except the Company, equal amount of cash to a tender price (3,825 yen) will be paid per share. (6) Matters concerning the Material Agreement regarding the Application for the Tender Offer between the Tender Offeror and shareholders of the Target As described in (1) Outline of the Tender Offer, the Company obtained the consent to accept the Tender Offer and the Cash-out Merger from Mr. Takahisa Takahara, President of the Company (holding: 60,000 shares and Portion; 0.20%).. 2. Outline of the Tender Offer (1) Outline of the Target 13

14 Corporate Name Description of Business Date Established Head Office Name and Title of Representative Paid-in Capital Major Shareholders and Shareholding Ration (As of September 30, 2009) Relationships between the listed company and the Target Unicharm PetCare Corporation Manufacturing and sales of pet food and pet care products October 6, Mita, Minato-ku, Tokyo, Japan President & C.E.O Gunpei Futagami 2,371 million yen (as of December 31, 2009) Unicharm Corporation 36.92% Unitec Corporation 9.40% Japan Trustee Services Bank, Ltd. 6.22% The Master Trust Bank of Japan, Ltd. 3.81% STATE STREET BANK AND TRUST COMPANY (Standing Proxy: Mizuho Corporate Bank, Ltd.) 2.00% STATE STREET BANK AND TRUST COMPANY 1.78% Japan Trustee Services Bank, Ltd. (Trust Account 9G) 1.49% MASA-JAPANESE EQUITY (Standing Proxy: The Bank of Tokyo-Mitsubishi UFJ, Ltd.) 1.48% Toshio Takahara 1.42% Keiichiro Takahara (Note 1) 1.22% Capital Relationship Personnel Relationship Transaction Relationship (Note 2) (Note 3) (Note 4) Status as a Related Party The Company holds 10,840,000 shares, equivalent to % of the total outstanding shares of the Target as of September 30, 2009 The following personnel doubles as employees of both the Company and the Target; Director: Mr. Takamitsu Igaue (executive officer of the Company), Mr. Hironori Nomura (executive officer of the Company) Auditor: Mr. Yasushi Akita (executive officer of the Company) There is a transaction relationship between the Company and the Target such as below; 1 Information processing commission payment from the Company to the Target: 2008/3 37 million yen, 2009/3 38 million yen, 2010/3 37 million yen 2 Office rental expense from the Target to the Company: 2008/3 17 million yen, 2009/3 18 million yen, 2010/3 18 million yen The Target is a consolidated subsidiary of the Company and falls under the category of the Related Parties (Note 1) He falls under the category of the specially-related parties of the Tender Offer (Note 2) Transaction amounts for 2010/3 have not received accounting and tax audit (Note 3) Each transaction amount does not include any consumption tax (Note 4) Each transaction amount price is decided by reference to the market price 14

15 (2) Tender Offer Period 1 Tender Offer Period as of the time of filing of the Tender Offer Registration Statement (the Registration Statement ) From Thursday, May 6, 2010 through Wednesday, June 16, 2010 (Japan standard time) (30 business days in Japan) 2 Possible extension of the Tender Offer Period based on the Target s request N/A (3) Tender Offer Purchase Price Common Stock of the Target: 3,825 yen per share of common stock (4) Basis of Calculation of Tender Offer Purchase Price 1 Basis of Calculation The Company requested Morgan Stanley, a financial advisor which is independent from the Company and the Target, to evaluate the equity value of the Target for the purpose of providing the Company with a basis to determine the Tender Offer Price in order to ensure the fairness thereof. Morgan Stanley conducted a valuation analysis of the Target s equity value through a share price performance analysis, comparable companies analysis and DCF analysis and then delivered the Tender Offeror Valuation Report to the Company (The Company has not obtained any opinion on the fairness of the Tender Offer Price (Fairness Opinion) from Morgan Stanley). A summary of the range of per share values of the Target for each valuation method conducted by Morgan Stanley is as follows; Valuation Method Share Price Performance Analysis Comparable Companies Analysis DCF Analysis Range of the Per Share Value of the Target from 2,977 yen to 3,115 yen from 2,652 yen to 3,346 yen from 3,352 yen to 4,732 yen The share price performance analysis resulted in a per share value of the Target ranging from 2,977 to 3,115 yen based on the closing price of the Target on the First Section of the Tokyo Stock Exchange on the Base Date (April 28, 2010) and the average closing price thereof for the latest one month (3,061 yen, rounded to the nearest yen), three months (2,977 yen, rounded to the nearest yen) and six months (3,007 yen, rounded to the nearest yen) prior to the Base Date. The comparable companies analysis resulted in a per share value of the Target ranging from 2,652 to 3,346 yen by evaluating the equity value of the Target through a comparison with listed companies operating a relatively similar business to that of the 15

16 Target based on their financial indexes including share price and profitability. The DCF analysis resulted in a per share value of the Target ranging from 3,352 to 4,732 yen by analyzing the corporate value and equity value using the present value of free cash flows which the Target is expected to produce in the future discounted at a certain level of discount rate, based on the earning forecasts prepared by the Company after the fiscal year ending in March 2012, taking in consideration various factors including the management plan obtained from the Target, latest business performance and information disclosed to the public and synergy effects expected to be generated from the business integration. Morgan Stanley estimated the per share value of the Target based on the financial projections prepared by the Company by making adjustments to the Target s business projections and information obtained from the Target, and assumed and relied upon the accuracy or completeness of such material and information without independent verification of the accuracy or completeness thereof. Morgan Stanley has not independently evaluated or appraised the assets and liabilities (including contingent liabilities) of the Target, and has not requested any such evaluations or appraisals from a third party. Morgan Stanley assumed the Tender Offer and the Cash-out Merger will be duly executed in accordance with its terms, that the tax consequences will not be different from the estimates provided to Morgan Stanley, that all necessary approvals and consents from relevant governmental and regulatory agencies will be obtained to execute the Tender Offer and the Cash-out Merger without any adverse effects on the expected return, and that Morgan Stanley is not obliged to assess such matters. Morgan Stanley has not taken into consideration any impact of legal, accounting and tax consequences on the Company and the Target that may result from the Tender Offer and the Cash-out Merger. The Company, by reference to the results from each calculation method described in the Tender Offeror Valuation Report provided by Morgan Stanley, comprehensively in consideration of the examples of premiums implied by the tender offer price at the time of its announcement in precedent tender offers for shares by entities other than the issuer, whether the board of directors of the Target would approve of the Tender Offer, the market share price performance of the common shares of the Target, and the expected number of subscriptions to the Tender Offer, and based on the results of discussion and negotiation with the Target, eventually determined the Tender Offer Price as 3,825 yen by the resolution of the board of directors held today. The Tender Offer Price 3,825 yen per share represents a premium of 22.8% (rounded to the first decimal place) on the closing price of 3,315 yen of the common share of the Target on the First Section of the Tokyo Stock Exchange on April 28, 2010, 25.0% (rounded to the first decimal place) on the simple average of 3,061 yen (rounded to the nearest yen) of the closing share price of the Target for the past month (from March 29, 2010 to April 28, 2010), 28.5% (rounded to the first decimal place) on the simple average of 2,977 yen (rounded to the nearest yen) of the closing share price of the Target for the past three months (from January 29, 2010 to April 28, 2010) and 27.2% (rounded to the first decimal place) on the simple average of 3,007 yen (rounded to the nearest yen) of the closing share price of the Target for the past six months (from October 29, 2009 to April 28, 2010). On the other hand, the Target said that they had appointed Nikko Cordial Securities, a financial advisor independent from the Company and the Target, as a 16