Mitsubishi Corporation

Press Room

August 19, 2011

Mitsubishi Corporation to Commence Tender Offer for Shares of Chuo Kagaku Co., Ltd.

Translation of report filed with the Tokyo Stock Exchange on August 19, 2011
 
 
Mitsubishi Corporation (hereinafter "the Company" or the "Tender Offeror") has announced that its Board of Directors today passed a resolution to make a tender offer (hereinafter the "Tender Offer") for the shares of Chuo Kagaku Co., Ltd. (hereinafter the "Target Company"). Details are as follows.
 
1. Purpose of the Tender Offer
 
(1) Outline of the Tender Offer
 
As of August 19, 2011, the Company owns 1,888,800 shares of the Target Company whose shares are listed on the JASDAQ Standard market (hereinafter “JASDAQ”), which is operated by the Osaka Securities Exchange. The 1,888,800 shares represent a shareholding of 9.37% relative to the number of shares (20,149,098 shares) obtained by subtracting the treasury shares (of 890,902 shares) owned by the Target Company as of June 30, 2011, as stated in the Interim Report for the 52nd Period filed by the Target Company on August 12, 2011, from the total number of issued shares (of 21,040,000) as of June 30, 2011 in the same report (shareholding is rounded to the 2nd decimal place; hereinafter, all shareholdings calculated on the same basis unless otherwise stated). Separately, Mitsubishi Shoji Packaging Corporation (hereinafter “Mitsubishi Shoji Packaging”), a consolidated subsidiary of the Company, held 1,000,000 shares, or a shareholding of 4.96%, of the Target Company’s shares. At a meeting of the Board of Directors held on August 19, 2011, the Company resolved to purchase 4,798,000 shares (equivalent to a shareholding of 23.81%) of the 4,907,847 shares (equivalent to a shareholding of 24.36%) owned by Akihito Watanabe, the largest shareholder and an employee of the Target Company, and all of the 3,980,000 Target Company shares (equivalent to a shareholding of 19.75%) owned by Watanabe Kosan Co., Ltd. (hereinafter “Watanabe Kosan”), a company majority-owned by Akihito Watanabe and responsible for the asset management of said individual and his family members, through the Tender Offer to make the Target Company a consolidated subsidiary. Watanabe Kosan is listed as the second largest shareholder of the Target Company as of June 30, 2011 in the Target Company’s Interim Report for the 52nd Period filed on August 12, 2011.
 
As stated above, the primary objective of the Tender Offer is to convert the Target Company into a consolidated subsidiary by acquiring the Target Company’s shares held by Watanabe Kosan and Akihito Watanabe. Accordingly, the Company has set the minimum number of shares to be purchased at 8,778,000 shares (representing a shareholding of 43.57%) in the Tender Offer. If the total number of tendered shares is less than the minimum number of shares to be purchased, the Company will not purchase all the tendered shares.
 
The Company does not plan to delist the shares in the Target Company at this stage. However, the Company has not set an upper limit on the number of shares to be purchased in the Tender Offer in order to ensure that shareholders of the Target Company other than Watanabe Kosan and Akihito Watanabe who wish to sell at the price for the purchases of shares in the Tender Offer (hereinafter, the “Tender Offer Price”) have the same opportunity to sell their shares in the Target Company as Watanabe Kosan and Akihito Watanabe. Accordingly, if the total number of tendered shares exceeds the minimum number of shares to be purchased (of 8,778,000 shares), the Company will purchase all the tendered shares. (For details on the outlook and reason for delisting of the Target Company’s shares as a result of the Tender Offer, please see the subsequent section “(6) Outlook and Reason for Delisting”).
 
Of the 4,907,847 shares (shareholding of 24.36%) of the Target Company owned by Akihito Watanabe, Chuo Kagaku Shoji Co., Ltd. (hereinafter “Chuo Kagaku Shoji”), Sumitomo Mitsui Banking Corporation (hereinafter “SMBC”), and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (hereinafter “The Bank of Tokyo-Mitsubishi UFJ”) have pledges for 3,658,000 shares (shareholding of 18.15%), 1,080,000 shares (shareholding of 5.36%), and 60,000 shares (shareholding of 0.30%), respectively. (The total number of Target Company shares held by Akihito Watanabe for which pledges have been established is 4,798,000 shares, or a shareholding of 23.81%.) The Company concluded a Tender Offer Support Agreement with Akihito Watanabe on August 19, 2011 under which Akihito Watanabe agreed to tender the Target Company’s shares that are the subject of the above pledges, conditional upon the following: there are no material errors regarding the Company’s representation and warranty based on the Tender Offer Support Agreement, including: (i) (1) items concerning the Company’s lawful and effective establishment, and status as a viable going concern, along with the Company’s possession of all necessary legal rights and capacity, and executive capacity to conduct current business operations (2) items concerning the lawful and valid conclusion of the Tender Offer Support Agreement by the Company, and its possession of all necessary legal rights and capacity and executive capacity to execute the agreement, and the fact that the conclusion and execution of the agreement falls within the scope of the purpose of the Company’s business activities, along with the timely and proper implementation of procedures by the Company based on necessary laws, regulations and other rules for the conclusion and execution of the agreement; (3) the lawful and effective conclusion of the agreement by the Company, and the conferral of lawful, effective and legally binding obligations upon the Company by the agreement, and the possibility of the forcible execution of the agreement; (4) items concerning the lawful and proper implementation of necessary procedures based on laws, regulations and other rules for the conclusion and execution of the agreement by the Company; (5) the conclusion and execution of the agreement by the Company shall not breach any laws, regulations and other rules, or the Company’s Articles of Incorporation and other internal rules, and shall not constitute grounds for the non-fulfillment of obligations under agreements and other arrangements in which the Company is the principal party, nor shall it breach any judgments or other decisions reached by judiciary or government agencies; and (6) the Company knows no undisclosed material facts concerning the Target Company, except for facts concerning the Tender Offer, as stipulated in the body of Article 166, Paragraph 1 of the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, including subsequent amendments; hereinafter “the Act”). The agreement is also conditional upon (ii) the removal of pledges on the Target Company shares held by Akihito Watanabe for which the above pledges have been established, by way of increasing the number of shares recorded in the holding account of Akihito Watanabe at the nearest upper positioned institution. (Incidentally, even if the conditions are not fulfilled, Akihito Watanabe is not prohibited or restricted from supporting the Tender Offer at his discretion.)
 
Furthermore, of the 3,980,000 shares (shareholding of 19.75%) of the Target Company owned by Watanabe Kosan, The Bank of Tokyo-Mitsubishi UFJ and Saitama Resona Bank, Limited have established pledges for 2,320,000 shares (shareholding of 11.51%) and 1,660,000 shares (shareholding of 8.24%), respectively. (The total number of Target Company shares held by Watanabe Kosan for which pledges have been established is 3,980,000 shares, or a shareholding of 19.75%. This represents all of the Target Company’s shares held by Watanabe Kosan.) The Company concluded a Tender Offer Support Agreement with Watanabe Kosan on August 19, 2011 under which Watanabe Kosan agreed to tender the Target Company’s shares that are the subject of the above pledges, conditional upon the following: there are no material errors regarding the Company’s representation and warranty based on the Tender Offer Support Agreement including: (i) (1) items concerning the Company’s lawful and effective establishment, and status as a viable going concern, along with the Company’s possession of all necessary legal rights and capacity, and executive capacity to conduct current business operations (2) items concerning the lawful and valid conclusion of the Tender Offer Support Agreement by the Company, and its possession of all necessary legal rights and capacity and executive capacity to execute the agreement, and the fact that the conclusion and execution of the agreement falls within the scope of the purpose of the Company’s business activities, along with the timely and proper implementation of procedures by the Company based on necessary laws, regulations and other rules for the conclusion and execution of the agreement; (3) the lawful and effective conclusion of the agreement by the Company, and the conferral of lawful, effective and legally binding obligations upon the Company by the agreement, and the possibility of the forcible execution of the agreement; (4) items concerning the lawful and proper implementation of necessary procedures based on laws, regulations and other rules for the conclusion and execution of the agreement by the Company; (5) the conclusion and execution of the agreement by the Company shall not breach any laws, regulations and other rules, or the Company’s Articles of Incorporation and other internal rules, and shall not constitute grounds for the non-fulfillment of obligations under agreements and other arrangements in which the Company is the principal party, nor shall it breach any judgments or other decisions reached by judiciary or government agencies; and (6) the Company knows no undisclosed material facts concerning the Target Company, except for facts concerning the Tender Offer, as stipulated in the body of Article 166, Paragraph 1 of the Act. The agreement is also conditional upon (ii) the removal of pledges on the Target Company shares held by Watanabe Kosan for which the above pledges have been established, by way of increasing the number of shares recorded in the holding account of Watanabe Kosan at the nearest upper positioned institution. (Incidentally, even if the conditions are not fulfilled, Watanabe Kosan is not prohibited or restricted from supporting the Tender Offer at its discretion.)
 
The Company has heard from Watanabe Kosan and Akihito Watanabe that discussions were held among Watanabe Kosan, Akihito Watanabe and the above pledgeholders, namely The Bank of Tokyo-Mitsubishi UFJ, Saitama Resona Bank, SMBC and Chuo Kagaku Shoji, regarding the cancellation of rights to said pledges. As a result of the discussions, on August 19, 2011, Watanabe Kosan, Akihito Watanabe, The Bank of Tokyo-Mitsubishi UFJ, Saitama Resona Bank, SMBC and Chuo Kagaku Shoji agreed that the pledgeholders will cancel their respective rights to the aforementioned pledges and allow Watanabe Kosan and Akihito Watanabe to tender the Target Company’s shares that are the subject of the above pledges, provided that certain conditions are met, including the following: the Tender Offer Support Agreement has not been changed or revoked, and there is no rational likelihood that the above agreement will be revised or revoked through to the end of the Tender Offer Period; and that the Tender Offer has not been withdrawn, and that there is no rational likelihood that the Tender Offer will be withdrawn.
 
Before initiating the Tender Offer, the Company clarified that the following Target Company shareholders had no intention of applying to the Tender Offer: Mitsubishi Shoji Packaging Corporation, which held 1,000,000 shares, or 4.96%, of the Target Company's shares as of today; Mitsubishi Plastics, Inc. (hereinafter “Mitsubishi Plastics”), which held 662 thousand shares, or 3.29%, of the Target Company's shares as of June 30, 2011, according to the Target Company's Interim Report for the 52nd Period filed on August 12, 2011; JSP Corporation (hereinafter “JSP”), which held 625 thousand shares, or 3.10%, of the Target Company's shares as of June 30, 2011, according to the Target Company's Interim Report for the 52nd Period filed on August 12, 2011; and The Bank of Tokyo-Mitsubishi UFJ, which held 516 thousand shares, or 2.56%, of the Target Company's shares as of June 30, 2011, according to the Target Company's Interim Report for the 52nd Period filed on August 12, 2011. Together, these 4 companies held 2,803 thousand shares, or 13.91%, of the Target Company's shares as of June 30, 2011, according to the Target Company's Interim Report for the 52nd Period filed on August 12, 2011.
 
According to the Target Company, a meeting of the Target Company’s Board of Directors was held on August 19, 2011, in which all the Target Company’s directors participated in discussions and resolutions. At the meeting, the Target Company passed a resolution expressing unanimous support for the Tender Offer based on the following reasons, while leaving it to shareholders to decide for themselves whether or not to tender their shares responding to the Tender Offer.
 
In other words, according to the Target Company, the Target Company has until now considered strategies on an ongoing basis that will lead to optimal and appropriate earnings for all shareholders, with a view to medium- to long-term development and enhanced enterprise value of the Target Company. However, the Target Company is facing a difficult operating environment, characterized by severe market conditions in Japan. These conditions have been caused by market saturation, leading to price-based competition with rival companies and sluggish growth in net sales in Japan. Soaring crude oil prices have exacerbated the situation. Under these conditions, the Target Company believes that in order to continue to grow and raise enterprise value into the future, it must bolster its business base in Japan, as well as generate earnings from its business in China by strengthening and promoting operations there, and generate earnings in its domestic businesses through cooperation with Target Company suppliers and customers with a direct or indirect involvement in China.
 
Further, according to the Target Company, by becoming a consolidated subsidiary of the Company through the Tender Offer, the Target Company should see an improvement in its external creditworthiness, enabling it to reduce fund procurement costs and maintain and expand customers. The Target Company will also be able to utilize support from the Company in terms of sales, raw materials supply and other areas in its businesses. In particular, the Target Company should be able to capture synergies to some extent through cooperation with the Company, including (i) expanded sales channels in China through the Company’s global network, (ii) efficient procurement of materials through the Company’s network, (iii) joint proposals and joint development in undeveloped areas and in new products, (iv) and joint development of customers. Leveraging these advantages should enable the Target Company to address key management issues, such as strengthening its business base in Japan and growing further in China. Furthermore, the support of the Target Company’s largest shareholders, Akihito Watanabe and Watanabe Kosan for the Tender Offer should help improve the Target Company’s financial condition, by restructuring bankruptcy or reorganization claims etc. related to the Target Company’s golf course development business, which has continued to affect the Target Company’s balance sheet over a number of years.
 
According to the Target Company, for the abovementioned and other reasons, the Target Company decided that the synergies likely to result with the Company by becoming a consolidated subsidiary of the Company through the Tender Offer would help raise the Target Company’s enterprise value over the medium and long terms.
 
As stated in “1) Request for Valuation Analysis From an Independent Third-Party Appraiser” in “(5) Measures Aimed to Ensure the Fairness of the Tender Offer, Including Measures Aimed to Ensure the Fairness of the Tender Offer Price and Measures to Avoid Conflicts of Interest” below, according to the appraisal result based on the valuation analysis of the Target Company’s shares by PricewaterhouseCoopers Co., Ltd. (hereinafter “PWC”), the third-party institution commissioned by the Target Company, the Tender Offer Price is within the range of values indicated by the appraisal result using Market Price Analysis and Comparable Companies Analysis, but below the range of values indicated by the appraisal result based on Discounted Cash Flow (DCF) Analysis.
 
After comprehensively considering a number of factors, the Target Company decided that it was best to reserve its opinion on the appropriateness of the Tender Offer Price and instead leave it to shareholders to decide for themselves whether or not to tender their shares. The board of directors of the Target Company resolved unanimously to express the above opinion at the board of directors’ meeting held on August 19, 2011. In addition to the abovementioned appraisal results (including that the Tender Offer Price was below the range of values indicated by the appraisal result based on DCF Analysis by PWC), the Target Company took into account the fact that the Tender Offer provides the shareholders of the Target Company with the opportunity to sell their shares at the Tender Offer Price, and that shareholders not wishing to tender Target Company shares they own in the Tender Offer can choose not to tender their shares. The Target Company also recognized that, while the Tender Offer does not set an upper limit on the number of shares to be purchased, according to the Company, the Company does not plan to delist the Target Company’s shares at this stage and in the unlikely event that the Target Company’s shares infringe upon the Delisting Standards (as defined in (6) below) as a result of the Tender Offer, the Target Company plans to implement specific measures for maintaining the public listing of the Target Company’s shares, the Company plans to faithfully consult with the Target Company on proposals for avoiding delisting and cooperate as reasonable. Such specific measures include requesting members of the employee shareholding plan to withdraw shares held through the employees’ shareholding association, requesting corporate officers and employees of the Target Company to continue holding their Target Company shares, and conducting a secondary offering of treasury shares owned by the Target Company. Furthermore, the Target Company took into account that it had heard that some Target Company shareholders did not intend to tender all of the Target Company shares they own.
 
Furthermore, all of the corporate auditors of the Target Company attended the above meeting of the board of directors, and expressed a unanimous opinion to the effect that they had no objection to the resolution adopted at the meeting of the board of directors.
 
(2) Objective and Background of the Tender Offer
 
The Mitsubishi Corporation Group is a diversified organization engaged in a wide variety of business activities, providing various types of products and services on a global basis leveraging its trading company functions. Through its domestic and overseas network, the Company is engaged in general trading, including the purchasing, supplying and manufacturing, of a wide range of products related to energy, metals, machinery, chemicals and living essentials, in addition to financial businesses and development of natural resources and infrastructure projects. The Company is also engaged in other businesses such as development of new business models in the new energy and environmental fields, and new technology-related businesses.
 
In the year ended March 2011, the Company launched a new three-year business plan called Midterm Corporate Strategy 2012. Under this plan, the Company set out to create sustainable enterprise value (sustainable economic value, sustainable societal value and sustainable environmental value) by helping solve global problems through business activities in light of the needs and expectations of all stakeholders. The Company plans to strengthen existing earnings drivers and develop new business for future growth in light of changes in the external business environment, including fast-growing emerging economies and stagnating OECD countries, the birth of new growth markets triggered by changing values, technological innovation and the rise of emerging economies, and our expanding stakeholder base. Midterm Corporate Strategy 2012 has also been drawn up in light of the Company’s internal business environment, which is undergoing changes in terms of business portfolio, diversification of business models and a shift of businesses to subsidiaries and affiliates.
 
The Company’s Chemicals Group is developing businesses in the commodity chemicals field, which involves handling raw materials in the upstream sector of the value chain, and the functional chemicals field such as plastics and electronic materials, which involves handling products in the downstream sector of the value chain. It is also active in the life science field, which includes food ingredients, pharmaceuticals and agrochemicals, and bio-technology. In the functional chemicals field, the Company is building and strengthening the global value chain from upstream to downstream, and promoting a market-oriented regional strategy in fast-growing overseas markets, and a one-stop supply platform strategy to strengthen its assortment of commodities for industries in demand of these products. Notably, plastics are expected to continue enjoying steady growth due to their wide-ranging use in building materials, packaging materials, automobiles, home electronics components and other areas. For this reason, the Company positions plastics as a priority business domain that it must enhance and expand going forward.
 
In addition to existing business transactions, the Company is promoting a variety of initiatives designed to enhance its value chain by securing competitive raw materials and investing in the processing field.
 
According to the Target Company, the Target Company has been manufacturing and selling food packaging and containers since 1961. Since its establishment, the Target Company has developed proprietary technologies, ranging from materials to molding technologies, in step with changing times, as one of the leading companies in Japan in the field of manufacturing and selling plastic food packaging and containers. Up until now, the Target Company has acquired many patents, as well as utility models in Japan and overseas. The Target Company also leads the industry in terms of addressing environmental problems. It has developed a broad range of products and services, including materials with a low environmental load and various recycling systems. The Target Company has also brought to market nonconventional recycled products. It is developing business activities overseas under the theme of "creating a global food culture." In addition to already having established subsidiaries in China, the Target Company is exporting technology all over the world as it contributes to an enhanced global food culture.
 
The Target Company has four key strengths: outstanding technology development capabilities, environmentally friendly products, a robust health and safety system, and a strong service lineup. Utilizing these strengths, the Target Company has contributed to Japan’s food culture, as one of the leading companies in plastic food packaging and containers. Furthermore, based on a medium-term management plan initiated in February 2011, the Target Company positions the plan as a period for cementing its business base to reinvigorate the company as "Japan's leading food packaging and container manufacturer." Based on its business plan, the Target Company is pushing ahead with business structure reforms in Japan to improve earnings, while putting in place a supply framework for clarifying and serving target markets in China.
 
On January 1, 2011 in Japan, the Target Company merged former wholly owned subsidiary CFK Co., Ltd. as it works to effectively utilize business resources in the group and improve business operational efficiency. At the same time, all business divisions at the Target Company have since 2010 been working to enhance and improve safety, quality, cost and delivery in a drive called the "SQCD Enhancement Project."
 
In China, at the Beijing Olympics held from August 2008 and the Shanghai Expo staged from May 2010, Target Company consolidated subsidiaries Beijing Yanqi Chuo Kagaku Co., Ltd. and Shanghai Chuo Kagaku Co., Ltd. were the only domestic Chinese disposable food container manufacturers to be nominated as safe and reliable food container suppliers. This recognition reaffirmed the safety of the Target Company Group’s products. In addition, it has helped to stimulate demand from consumers who place value on health and hygiene. Combined with expansion in the domestic market on the back of the country’s economic growth, the Target Company’s subsidiaries in China have seen sales grow by double digits. Furthermore, as a result of Target Company subsidiaries sharing information and facilities, the Target Company’s China subsidiaries have markedly improved their earnings. As a result, sales in the Chinese market have steadily expanded. In the fiscal year ended March 31, 2011, sales in the Chinese market accounted for 9.4% of the Target Company’s consolidated net sales. Looking ahead, the Target Company will continue to take full advantage of its four strengths noted above, as it aims to become a leading company in the growing Chinese market, while working to further enhance its overseas operations.
 
On the other hand, the Target Company’s operating environment remains challenging. The plastic food packaging and container market in Japan in recent years has seen demand shrink as the country’s population ages and competition escalates with peer companies. These factors have led to lower unit sales prices and market saturation due to excess supply. In an economic environment of protracted sluggish growth, the plastic food packaging and container market is not expected to see significant growth.
 
However, in addition to deteriorating operating results due to a slow response to competition that has emerged since 2000 and changes in the industry operating environment, the Target Company saw its financial position deteriorate mainly owing to bad debt losses in a golf course development investment business in 2003. Against this backdrop, in 2009, the Company, Mitsubishi Plastics and JSP together subscribed to a capital increase by the Target Company, and together with The Bank of Tokyo-Mitsubishi UFJ the four companies put in place a structure to support the Target Company. In March 2010, Susumu Ukawa was appointed as the Target Company’s new president to head a new management team. While the Target Company has begun to see improvements on the production front from management reforms initiated by the new management team, sales have yet to improve because of the slow pace of reforms on the sales front. With the Target Company still grappling with financial problems and the Great East Japan Earthquake adding to its problems, the Target Company is under pressure to speed up its revitalization.
 
Over the past two or so years, the Company has helped the Target Company to improve its business, particularly in China. Although there are various issues confronting Chinese operations, the Company believes they are of a level that can be solved if appropriate measures are taken. Furthermore, with the Chinese market expanding rapidly, the Company believes that the Target Company can expect to experience significant growth in the country going forward. In Japan, the Company believes there is room to make improvements to the current sales structure and company systems and organization. But the Company arrived at the conclusion that it would be difficult to proceed with specific measures under the current support structure based on current shareholdings.
 
Therefore, at the end of May 2011, the Company made a proposal (hereinafter “the Proposal”) to the Target Company, whereby it would purchase the Target Company shares held by Watanabe Kosan and Akihito Watanabe through a tender offer to make it a consolidated subsidiary and help to strengthen the Target Company’s food container business in China and other overseas businesses. According to the Target Company, after receiving the Proposal, the Target Company obtained advice from PWC and legal advisor Mori Hamada & Matsumoto, and closely studied the details of the Proposal. At the same time, the Company discussed the Target Company possible synergies that could be captured after the Tender Offer and measures to address the Target Company’s medium- to long-term management issues. The Company also looked at the Target Company’s sustainable growth as well as improvement in enterprise value over the medium to long term.
 
The Company has heard from Watanabe Kosan and Akihito Watanabe that discussions have been held among Watanabe Kosan, Akihito Watanabe and the above pledgeholders, namely The Bank of Tokyo-Mitsubishi UFJ, Saitama Resona Bank, SMBC and Chuo Kagaku Shoji, regarding the cancellation of rights to said pledges. As a result of the discussions, on August 19, 2011, Watanabe Kosan, Akihito Watanabe, The Bank of Tokyo-Mitsubishi UFJ, Saitama Resona Bank, SMBC and Chuo Kagaku Shoji agreed that the pledgeholders will cancel their respective rights to the aforementioned pledges and approve Watanabe Kosan’s and Akihito Watanabe’s support for the Tender Offer for the Target Company’s shares that are the subject of the above pledges, provided that certain conditions are met, including the following: the Tender Offer Support Agreement has not been changed or revoked, and there is no rational likelihood that the above agreement will be revised or revoked through to the end of the Tender Offer Period; and that the Tender Offer has not been withdrawn, and that there is no rational likelihood that the Tender Offer will be withdrawn.
 
In light of the above situation, the Company decided to conduct the Tender Offer to make the Target Company a consolidated subsidiary, believing that this would enable both companies to enhance sustainable enterprise value and thus be the best option for all stakeholders, including shareholders and employees. The Company will bolster and accelerate revitalization support for the Target Company as a consolidated subsidiary in terms of sales, raw materials supply and overall business in China, all areas where the Company excels as a trading company, augmenting the Target Company's proprietary materials, molding and other technologies and considerable growth prospects in China.
 
(3) Management Policy After the Tender Offer
 
In order to offer the aforementioned revitalization support and drive further growth and raise the enterprise value of both the Company and the Target Company, the Company plans to have majority representation on the Target Company’s board of directors. As of August 19, 2011, Mr. Susumu Ukawa, the current president of the Target Company, is scheduled to remain at the helm of management as the Target Company’s president even after the Tender Offer is completed. Plans also call for discussions and consideration with the Target Company regarding the Target Company’s management structure, management policy and other matters.
 
(4) Material Agreements Concerning the Tender Offer
 
1) Approval by all the Target Company’s Directors and Corporate Auditors
 
According to the Target Company, a meeting of the Target Company’s board of directors was held on August 19, 2011, in which all the Target Company’s directors participated in discussions and resolutions. At the meeting, the Target Company passed a resolution expressing unanimous support for the Tender Offer, while leaving it to shareholders to decide for themselves whether or not to tender their shares. According to the Target Company, the reasons for the resolution are as stated in “(1) Outline of the Tender Offer” above. Furthermore, all of the corporate auditors of the Target Company attended the above meeting of the board of directors, and expressed a unanimous opinion to the effect that they had no objection to the resolution adopted at the meeting of the board of directors.
 
2) Matters relating to material agreement between the Tender Offeror and Shareholders of the Target Company Concerning the Tender Offer
 
The Company concluded a Tender Offer Support Agreement with Akihito Watanabe on August 19, 2011 under which Akihito Watanabe agreed to tender the Target Company’s shares that are the subject of the above pledges, conditional upon the following: there are no material errors regarding the Company’s represantation and warranty based on the Tender Offer Support Agreement, including: (i) (1) items concerning the Company’s lawful and effective establishment, and status as a viable going concern, along with the Company’s possession of all necessary legal rights and capacity, and executive capacity to conduct current business operations (2) items concerning the lawful and valid conclusion of the Tender Offer Support Agreement by the company, and its possession of all necessary legal rights and capacity and executive capacity to execute the agreement, and the fact that the conclusion and execution of the agreement falls within the scope of the purpose of the Company’s business activities, along with the timely and proper implementation of procedures by the Company based on necessary laws, regulations and other rules for the conclusion and execution of the agreement; (3) the lawful and effective conclusion of the agreement by the Company, and the conferral of lawful, effective and legally binding obligations upon the Company by the agreement, and the possibility of the forcible execution of the agreement; (4) items concerning the lawful and proper implementation of necessary procedures based on laws, regulations and other rules for the conclusion and execution of the agreement by the Company; (5) the conclusion and execution of the agreement by the Company shall not breach any laws, regulations and other rules, or the Company’s Articles of Incorporation and other internal rules, and shall not constitute grounds for the non-fulfillment of obligations under agreements and other arrangements in which the Company is the principal party, nor shall it breach any judgments or other decisions reached by judiciary or government agencies; and (6) the Company knows no undisclosed material facts concerning the Target Company, except for facts concerning the Tender Offer, as stipulated in the body of Article 166, Paragraph 1 of the Act. The agreement is also conditional upon (ii) the removal of pledges on the Target Company shares held by Akihito Watanabe for which the above pledges have been established, by way of increasing the number of shares recorded in the holding account of Akihito Watanabe at the nearest upper positioned institution. (Incidentally, even if the conditions are not fulfilled, Akihito Watanabe is not prohibited or restricted from supporting the Tender Offer at his discretion.)
 
The Company concluded a Tender Offer Support Agreement with Watanabe Kosan on August 19, 2011 under which Watanabe Kosan agreed to tender the Target Company’s shares that are the subject of the above pledges, conditional upon the following: there are no material errors regarding the Company’s representation and warranty based on the Tender Offer Support Agreement including: (i) (1) items concerning the Company’s lawful and effective establishment, and status as a viable going concern, along with the Company’s possession of all necessary legal rights and capacity, and executive capacity to conduct current business operations (2) items concerning the lawful and valid conclusion of the Tender Offer Support Agreement by the Company, and the its possession of all necessary legal rights and capacity and executive capacity to execute the agreement, and the fact that the conclusion and execution of the agreement falls within the scope of the purpose of the Company’s business activities, along with the timely and proper implementation of procedures by the Company based on necessary laws, regulations and other rules for the conclusion and execution of the agreement; (3) the lawful and effective conclusion of the agreement by the Company, and the conferral of lawful, effective and legally binding obligations upon the Company by the agreement, and the possibility of the forcible execution of the agreement; (4) items concerning the lawful and proper implementation of necessary procedures based on laws, regulations and other rules for the conclusion and execution of the agreement by the Company; (5) the conclusion and execution of the agreement by the Company shall not breach any laws, regulations and other rules, or the Company’s Articles of Incorporation and other internal rules, and shall not constitute grounds for the non-fulfillment of obligations under agreements and other arrangements in which the Company is the principal party, nor shall it breach any judgments or other decisions reached by judiciary or government agencies; and (6) the Company knows no undisclosed material facts concerning the Target Company, except for facts concerning the Tender Offer, as stipulated in the body of Article 166, Paragraph 1 of the Act. The agreement is also conditional upon (ii) the removal of pledges on the Target Company shares held by Watanabe Kosan for which the above pledges have been established, by way of increasing the number of shares recorded in the holding account of Watanabe Kosan at the nearest upper positioned institution. (Incidentally, even if the conditions are not fulfilled, Watanabe Kosan is not prohibited or restricted from supporting the Tender Offer at its discretion.)
 
The Company has heard from Watanabe Kosan and Akihito Watanabe that discussions were held among Watanabe Kosan, Akihito Watanabe and the above pledgeholders, namely The Bank of Tokyo-Mitsubishi UFJ, Saitama Resona Bank, SMBC and Chuo Kagaku Shoji, regarding the cancellation of rights to said pledges. As a result of the discussions, on August 19, 2011, Watanabe Kosan, Akihito Watanabe, The Bank of Tokyo-Mitsubishi UFJ, Saitama Resona Bank, SMBC and Chuo Kagaku Shoji agreed that the pledgeholders will cancel their respective rights to the aforementioned pledges and allow Watanabe Kosan and Akihito Watanabe to tender the Tender Offer for the Target Company’s shares that are the subject of the above pledges, provided that certain conditions are met, including the following: the Tender Offer Support Agreement has not been changed or revoked, and there is no rational likelihood that the above agreement will be revised or revoked through to the end of the Tender Offer Period; and that the Tender Offer has not been withdrawn, and that there is no rational likelihood that the Tender Offer will be withdrawn.
 
The Company also understands that Target Company shareholders Mitsubishi Shoji Packaging, Mitsubishi Plastics, JSP and The Bank of Tokyo-Mitsubishi UFJ intend not to support the Tender Offer for all Target Company shares they respectively own.
 
(5) Measures Aimed to Ensure the Fairness of the Tender Offer, Including Measures Aimed to Ensure the Fairness of the Tender Offer Price and Measures to Avoid Conflicts of Interest
 
The Company and the Target Company are taking the following measures as a means aimed to ensure the fairness of the Tender Offer, including measures aimed to ensure the fairness of the Tender Offer Price, and measures to avoid conflicts of interest.
 
1) Request for Valuation Analysis From an Independent Third-Party Appraiser
 
For the purpose of reference when determining the Tender Offer Price, the Company asked Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (hereinafter “Mitsubishi UFJ Morgan Stanley Securities”), a financial advisor, to conduct a valuation analysis of the Target Company's shares, as a third-party appraiser independent of the Company and the Target Company. (Mitsubishi UFJ Morgan Stanley Securities is not a related party of the Company, and does not have a material beneficial interest in the Tender Offer.)
 
Mitsubishi UFJ Morgan Stanley Securities used Market Price Analysis, Comparable Companies Analysis, and Discounted Cash Flow (DCF) Analysis to conduct a valuation analysis of the Target Company's shares. The Company received the valuation analysis from Mitsubishi UFJ Morgan Stanley Securities on August 17, 2011. (The Company did not receive a fairness opinion concerning the Tender Offer Price.) The range of valuations per share of the Target Company's common stock obtained using the abovementioned methods was as follows:
 
[Market Price Analysis]    
 
376 yen to 390 yen
 
[Comparable Companies Analysis]
 
201 yen to 508 yen
 
[DCF Analysis]
 
335 yen to 581 yen
 
With Market Price Analysis, the range of per-share values produced for the Target Company's common stock was 376 yen to 390 yen. This range was calculated based on a reference date of August 15, 2011 for transactions of the Target Company's common stock on JASDAQ directly before the Tender Offer announcement, and based on the 383 yen closing price on the reference date of the Target Company's common stock on JASDAQ, as well as the 384 yen average closing price (rounded) for the most recent one week on days when there were transactions, the 390 yen average closing price (rounded) for the most recent one month on days when there were transactions, and the 376 yen average closing price (rounded) for the most recent three months on days when there were transactions.
 
Under Comparable Companies Analysis, which considers the relationship between public market share prices and financial performance indicators showing profitability of listed companies which are engaged in a business comparably similar to that of the Target Company to arrive at an implied per-share value, the range of per-share values produced for the Target Company's common stock was 201 yen to 508 yen.
 
Under DCF Analysis, which analyzes estimated future free cash flows of the Target Company based on future earnings forecasts of the Target Company from the year ending December 31, 2011, taking into consideration factors such as the Target Company's business plans, recent operating performance and business environment, and discounts it back at a certain discount rate to the present enterprise value and equity value of the Target Company, the range of per-share values produced for the Target Company's common stock was 335 yen to 581 yen.
 
While considering the results of the valuation analysis obtained from Mitsubishi UFJ Morgan Stanley Securities, the Company comprehensively considered the results of discussions and negotiations pertaining to the purchase of the Target Company's shares with the Target Company's largest shareholders, namely Target Company employee Akihito Watanabe, and Watanabe Kosan, and of due diligence (legal, accounting, taxation, etc.) of the Target Company, whether or not the Target Company would support the Tender Offer, the outlook for the result of the Tender Offer, trends in the market price of the Target Company's shares and other factors. The Board of Directors of the Company subsequently and ultimately decided on August 19, 2011 to set the Tender Offer Price at 386 per share.
 
The Tender Offer Price of 386 yen per share represents a 1.0% discount (rounded to 1 decimal place) on the 390 yen closing price of the Target Company's common stock of regular transactions on JASDAQ on August 18, 2011, the business day directly before the announcement of the Tender Offer. It also represents a discount of 0.3% (rounded to 1 decimal place) on the 387 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past one week (the period from August 12 to August 18, 2011). Furthermore, it represents a 1.0% discount (rounded to 1 decimal place) on the 390 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past one month (the period from July 19 to August 18, 2011). However, it represents a premium of 2.4% (rounded to 1 decimal place) on the 377 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past three months (the period from May 19 to August 18, 2011). And it represents a premium of 3.8% (rounded to 1 decimal place) on the 372 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past six months (the period from February 21 to August 18, 2011).
 
According to the Target Company, the Target Company obtained a valuation analysis of the Target Company’s common stock on August 18, 2011 from PWC, a third-party institution independent of the Target Company and the Company. The Target Company referred to this valuation analysis as the basis for studying the Tender Offer Price indicated by the Company. (The Target Company did not receive a fairness opinion concerning the Tender Offer Price from a third-party institution.) The appraisal result of the Target Company’s share price by PWC, is as follows, according to the aforementioned valuation analysis.
 
[Market Price Analysis]   
 
377 yen to 394 yen
 
[Comparable Companies Analysis]
 
371 yen to 471 yen
 
[DCF Analysis]
 
545 yen to 691 yen
 
PWC obtained documents and an explanation from the Target Company’s management team regarding the current state of business, future business plans and other matters, and based on this information calculated values for the shares of the Target Company under certain assumptions and conditions. In PWC’s valuation analysis report, PWC assumed that the Target Company was a going concern. PWC used Market Price Analysis, Comparable Companies Analysis, and DCF Analysis to conduct a valuation analysis of the Target Company's shares. Market Price Analysis is a method that appraises the share value based on the share price on the share market of the Target Company’s common stock. It was used because it was seen as an objective appraisal method for valuating listed company shares. Under Market Price Analysis, the valuation reference date was August 17, 2011. The valuation looked at recent share prices and trading volumes, the closing price (390 yen) of the Target Company’s common stock on JASDAQ on the reference date, and the average closing price in the 2 weeks, 1 month and 3 months leading up to the reference date (2-week average closing price: 384 yen (rounded); 1-month average closing price: 390 yen (rounded); and 3-month average closing price: 377 yen (rounded)), and weighted-average price (2-week weighted-average price: 382 yen (rounded); 1-month weighted-average price: 394 yen (rounded); and 3-month weighted-average price: 381 yen (rounded)). Using this method produced a range of 377 yen to 394 yen as the valuation per share for the Target Company’s common stock. Comparable Companies Analysis was used because it is believed to reflect the objectivity of share markets, as with Market Price Analysis, for using share prices and financial data of peer companies. Under Comparable Companies Analysis, PWC analyzed the comparable multiple by comparing with comparable listed companies. Using this method produced a range of 371 yen to 471 yen as the valuation per share for the Target Company’s common stock. DCF Analysis was used because it is thought to be a method suited to assessing a going concern since it is a valuation method based on a company’s future cash flows (earnings power). Under DCF Analysis, future cash flows calculated based on the Target Company’s business plans from the fiscal year ending December 31, 2011 through the fiscal year ending December 31, 2013 are discounted back at a certain discount rate to present value to assess enterprise value. Using this method produced a range of 545 yen to 691 yen as the valuation per share for the Target Company’s common stock.
 
2) Advice From a Law Firm
 
According to the Target Company, the board of directors of the Target Company obtained necessary legal advice from Mori Hamada & Matsumoto, legal advisor to the Target Company, as a means aimed to ensure the fairness of the decision-making process when the Tender Offer was discussed and a decision made. 
 
3) Approval by all of the Target Company’s Directors and Corporate Auditors
 
According to the Target Company, a meeting of the Target Company’s board of directors was held on August 19, 2011, in which all the Target Company’s directors participated in discussions and resolutions. At the meeting, the Target Company passed a resolution expressing unanimous support for the Tender Offer while leaving it to shareholders to decide for themselves whether or not to tender their shares responding to the Tender Offer. According to the Target Company, the reasons for this resolution are stated in “(1) Outline of the Tender Offer.” Furthermore, all of the corporate auditors of the Target Company attended the above meeting of the board of directors, and expressed a unanimous opinion to the effect that they had no objection to the resolution adopted at the meeting of the board of directors.
 
6) Probability of Delisting and Reason Therefor
 
The Company plans to purchase the Target Company shares owned by Watanabe Kosan and Akihito Watanabe through the Tender Offer to make the Target Company a consolidated subsidiary. However, the Company does not plan to delist the shares in the Target Company at this stage.   Furthermore, the current management team of the Target Company wishes for the Target Company's shares to remain listed after the Tender Offer at this stage.
 
The Company has not set an upper limit on the number of shares to be purchased in the Tender Offer in order to ensure that shareholders of the Target Company other than Watanabe Kosan and Akihito Watanabe who wish to sell at the Tender Offer Price in the Tender Offer have the same opportunity to sell their shares in the Target Company as Watanabe Kosan and Akihito Watanabe.
 
Accordingly, depending on the outcome of the Tender Offer, the shares in the Target Company may be delisted, after the prescribed procedures, if the delisting standards (1) to (3) of JASDAQ below (hereinafter "Delisting Standards") apply.
 
1) The number of floating shares on the last day of the fiscal year of the listed company is less than 500 units, with a grace period of one year.
 
(The number of floating shares, here and below, are defined as the number of shares owned by shareholders other than the officers of the listed company (which means directors, accounting advisors (kaikei sanyo), statutory auditors and executive officers and includes executives' shareholding association (yakuin mochikabu kai)), the listed company itself in case where such listed company owes treasury shares, and the shareholders owning shares of 10% or more of the listed company's shares (excluding the number of shares that are clearly not held on a long term basis).
 
2) The number of shareholders on the last day of the fiscal year of the listed company is less than 150, with a grace period of one year
 
3) The market capitalization of floating shares on the last day of the fiscal yaer of the listed company (defined as the amount obtained by multiplying the number of floating shares by the closing price at the end of the fiscal year; same definition applies below) is less than 250 million yen, with a grace period of one year
 
In the unlikely event that the Target Company’s shares infringe upon the Delisting Standards as a result of the Tender Offer, according to the Target Company, the Target Company plans to implement specific measures for maintaining the public listing of the Target Company’s shares. Such specific measures include requesting members of the employee shareholding association (jugyoin mochikabu kai) to withdraw shares held through the employees’ shareholding association, requesting corporate officers and employees of the Target Company to continue holding their Target Company shares, and conducting a secondary offering of treasury shares owned by the Target Company. The Company plans to faithfully consult with the Target Company on measures for avoiding delisting and sincerely cooperate with the Target Company to the reasonable extent.
 
Before initiating the Tender Offer, the Company was informed that the following Target Company shareholders had no intention of applying to the Tender Offer: Mitsubishi Shoji Packaging, which held 1,000,000 shares, or 4.96%, of the Target Company's shares as of today; Mitsubishi Plastics, which held 662 thousand shares, or 3.29%, of the Target Company's shares as of June 30, 2011, according to the Target Company's Interim Report for the 52nd Period filed on August 12, 2011; JSP, which held 625 thousand shares, or 3.10%, of the Target Company's shares as of June 30, 2011, according to the Target Company's Interim Report for the 52nd Period filed on August 12, 2011; and The Bank of Tokyo-Mitsubishi UFJ, which held 516 thousand shares, or 2.56%, of the Target Company's shares as of June 30, 2011, according to the Target Company's Interim Report for the 52nd Period filed on August 12, 2011. Together, these four companies held 2,803 thousand shares, or 13.91%, of the Target Company's shares as of June 30, 2011, according to the Target Company's Interim Report for the 52nd Period filed on August 12, 2011. However, depending on the outcome of the Tender Offer, even if Mitsubishi Shoji Packaging, Mitsubishi Plastics, JSP and The Bank of Tokyo-Mitsubishi UFJ do not apply for the Tender Offer, the Target Company’s shares could be delisted, after the prescribed procedures, if the aforementioned Delisting Standards (1) to (3) apply.
 
Regarding the Delisting Standards due to the number of floating shares in 1) and the market capitalization of floating shares in 3) above, these standards apply to fiscal years beginning on or after April 1, 2013. The application of the Delisting Standards concerning the number of shareholders in 2) above is determined based on the number of shareholders on the last day of the fiscal year and during the one-year grace period from that date. The last day of the fiscal year of the Target Company that falls immediately after the commencement of the Tender Offer is December 31, 2011.
 
(7) Plans to Purchase Additional Shares of the Target Company After the Tender Offer, and Reasons and Details Thereof
 
The Company intends to purchase 4,798,000 shares (equivalent to a shareholding of 23.81%) of the 4,907,847 shares (equivalent to a shareholding of 24.36%) owned by Akihito Watanabe, and all of the 3,980,000 shares (equivalent to a shareholding of 19.75%) owned by Watanabe Kosan through the Tender Offer to make the Target Company a consolidated subsidiary. If the Company achieves this goal, it does not plan at this stage to purchase additional shares of the Target Company.
 
2. Outline of the Tender Offer
 
Company Name
Chuo Kagaku Co., Ltd.
Head Office
5-1, Miyaji 3-chome, Konosu-shi, Saitama Prefecture
Name and Title of Representative
Susumu Ukawa, President
Main Business
Manufacture and sale of plastic food containers, related products and other products
Capital
6,212 million yen (as of June 30, 2011)
Established
January 30, 1961
Major Shareholders and Ownership Ratio (as of June 30, 2011)
Akihito Watanabe
Watanabe Kosan Co., Ltd.
Mitsubishi Corporation
Mitsubishi Shoji Packaging Corporation
Eastern Japan CT Association
Western Japan CT Association
Mitsubishi Plastics, Inc.
JSP Corporation
Sumitomo Mitsui Banking Corporation
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
23.32%
18.91%
8.97%
4.75%
4.11%
3.14%
3.14%
2.97%
2.53%
2.45%
Relationship of Listed Company and Target Company
 
 
 
Capital Relationship
The Company owns Target Company shares representing the equivalent of 8.97% of the total number of issued shares of the Target Company. Furthermore, Mitsubishi Shoji Packaging Corporation, a consolidated subsidiary of the Company, owns Target Company shares representing the equivalent of 4.75% of the total number of issued shares of the Target Company.
 
 
 
Personnel Relationship
Three Company employees are on secondment at the Target Company. One of these employees serves as an executive officer of the Target Company.
 
 
 
Business Relationship
The Company sells raw materials and other products to the Target Company.
 
 
 
 
Related Party Status
The Company is not deemed to be a related party of the Target Company. Furthermore, associates and affiliated companies of the Company are not deemed to be related parties of the Target Company.
 
(Note 1) In addition to the above, there are 890 thousand shares of treasury stock owned by the Target Company, constituting a shareholding of 4.23%.
 
(Note 2) The above table, including Note 1, was prepared based on the Target Company’s Annual Securities Report for the 51st Period filed on March 29, 2011, and its Interim Earnings Report for the 52nd Period filed on August 12, 2011.
 
(2) Schedule
 
1) Schedule
 
Board of Directors’ resolution
August 19, 2011 (Friday)
Date of public notice of start of Tender Offer
September 5, 2011 (Monday)
Public notice will be made through electronic disclosure, and notice to such effect will be published in the Nihon Keizai Shimbun.
(EDINET (Electronic Disclosure for Investors’ NETwork) address
Tender Offer Statement submission date
September 5, 2011 (Monday)
 
2) Term of Tender Offer Period as of the Filing of the Tender Offer Statement
 
From Monday, September 5, 2011 to Wednesday, October 19, 2011 (30 business days)
 
3) Possibility of Extension of Tender Offer Period Upon Request of the Target Company
 
N/A
 
(3) Tender Offer Price
 
386 yen per common stock
 
(4) Basis of the Tender Offer Price
 
1) Calculation Basis
 
For the purpose of reference when determining the Tender Offer Price, the Company asked Mitsubishi UFJ Morgan Stanley Securities, a financial adviser, to conduct a valuation analysis of the Target Company's shares, as a third-party appraiser independent of the Company and the Target Company. (Mitsubishi UFJ Morgan Stanley Securities is not a related party of the Company, and does not have a material beneficial interest in the Tender Offer.)
 
Mitsubishi UFJ Morgan Stanley Securities used Market Price Analysis, Comparable Companies Analysis, and DCF Analysis to conduct a valuation analysis of the Target Company's shares. The Company received the valuation analysis from Mitsubishi UFJ Morgan Stanley Securities on August 17, 2011. (The Company did not receive a fairness opinion concerning the Tender Offer Price.) The range of valuations per share of the Target Company's common stock obtained using the abovementioned methods was as follows:
 
[Market Price Analysis]    
 
376 yen to 390 yen
 
[Comparable Companies Analysis]
 
201 yen to 508 yen
 
[DCF Analysis]
 
335 yen to 581 yen
 
With Market Price Analysis, the range of per-share values produced for the Target Company's common stock was 376 yen to 390 yen. This range was calculated based on a reference date of August 15, 2011 for transactions of the Target Company's common stock on JASDAQ directly before the Tender Offer announcement, and based on the 383 yen closing price on the reference date of the Target Company's common stock on JASDAQ, as well as the 384 yen average closing price (rounded) for the most recent one week on days when there were transactions, the 390 yen average closing price (rounded) for the most recent one month on days when there were transactions, and the 376 yen average closing price (rounded) for the most recent three months on days when there were transactions.
 
Under Comparable Companies Analysis, which considers the relationship between public market share prices and financial performance indicators showing profitability of listed companies which are engaged in a business comparably similar to that of the Target Company to arrive at an implied per-share value, the range of per-share values produced for the Target Company's common stock was 201 yen to 508 yen.
 
Under DCF Analysis, which analyzes estimated future free cash flows of the Target Company based on future earnings forecasts of the Target Company from the year ending December 31, 2011, taking into consideration factors such as the Target Company's business plans, recent operating performance and business environment, and discounts it back at a certain discount rate to the present enterprise value and equity value of the Target Company, the range of per-share values produced for the Target Company's common stock was 335 yen to 581 yen.
 
While considering the results of the valuation analysis obtained from Mitsubishi UFJ Morgan Stanley Securities, the Company comprehensively considered the results of discussions and negotiations pertaining to the purchase of the Target Company's shares with the Target Company's largest shareholders, namely Target Company employee Akihito Watanabe, and Watanabe Kosan, and of due diligence (legal, accounting, taxation, etc.) of the Target Company, whether or not the Target Company would support the Tender Offer, the outlook for the result of the Tender Offer, trends in the market price of the Target Company's shares and other factors. The Board of Directors of the Company subsequently and ultimately decided on August 19, 2011 to set the Tender Offer Price at 386 per share.
 
The Tender Offer Price of 386 yen per share represents a 1.0% discount (rounded to 1 decimal place) on the 390 yen closing price of the Target Company's common stock of regular transactions on JASDAQ on August 18, 2011, the business day directly before the announcement of the Tender Offer. It also represents a discount of 0.3% (rounded to 1 decimal place) on the 387 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past one week (the period from August 12 to August 18, 2011). Furthermore, it represents a 1.0% discount (rounded to 1 decimal place) on the 390 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past one month (the period from July 19 to August 18, 2011). However, it represents a premium of 2.4% (rounded to 1 decimal place) on the 377 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past three months (the period from May 19 to August 18, 2011). And it represents a premium of 3.8% (rounded to 1 decimal place) on the 372 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past six months (the period from February 21 to August 18, 2011).
 
2) Calculation Background
 
However, in addition to deteriorating operating results due to a slow response to competition that has emerged since 2000 and changes in the industry operating environment, the Target Company saw its financial position deteriorate mainly owing to bad debt losses in a golf course development investment business in 2003. Against this backdrop, in 2009, the Company, Mitsubishi Plastics and JSP together subscribed to a capital increase by the Target Company, and together with The Bank of Tokyo-Mitsubishi UFJ the four companies put in place a structure to support the Target Company. In March 2010, Susumu Ukawa was appointed as the Target Company’s new president to head a new management team. While the Target Company has begun to see improvements on the production front from management reforms initiated by the new management team, sales have yet to improve because of the slow pace of reforms on the sales front. With the Target Company still grappling with financial problems and the Great East Japan Earthquake adding to its problems, the Target Company is under pressure to speed up its revitalization.
 
Over the past two or so years, the Company has helped the Target Company to improve its business, particularly in China. Although there are various issues confronting Chinese operations, the Company believes they are of a level that can be solved if appropriate measures are taken. Furthermore, with the Chinese market expanding rapidly, the Company believes that the Target Company can expect to experience significant growth in the country going forward. In Japan, the Company believes there is room to make improvements to the current sales structure and company systems and organization. But the Company arrived at the conclusion that it would be difficult to proceed with specific measures under the current support structure based on current shareholdings.
 
Therefore, at the end of May 2011, the Company made a proposal (hereinafter “the Proposal”) to the Target Company, whereby it would purchase the Target Company shares held by Watanabe Kosan and Akihito Watanabe through a tender offer to make it a consolidated subsidiary and help to strengthen the Target Company’s food container business in China and other overseas businesses. According to the Target Company, after receiving the Proposal, the Target Company obtained advice from PWC and legal advisor Mori Hamada & Matsumoto, and closely studied the details of the Proposal. At the same time, the Company discussed with the Target Company possible synergies that could be captured after the Tender Offer and measures to address the Target Company’s medium- to long-term management issues. The Company also looked at the Target Company’s sustainable growth as well as improvement in enterprise value over the medium to long term.
 
The Company has heard from Watanabe Kosan and Akihito Watanabe that discussions were held among Watanabe Kosan, Akihito Watanabe and the above pledgeholders, namely The Bank of Tokyo-Mitsubishi UFJ, Saitama Resona Bank, SMBC and Chuo Kagaku Shoji, regarding the cancellation of rights to said pledges. As a result of the discussions, on August 19, 2011, Watanabe Kosan, Akihito Watanabe, The Bank of Tokyo-Mitsubishi UFJ, Saitama Resona Bank, SMBC and Chuo Kagaku Shoji agreed that the pledgeholders will cancel their respective rights to the aforementioned pledges and allow Watanabe Kosan and Akihito Watanabe to tender the Tender Offer for the Target Company’s shares that are the subject of the above pledges, provided that certain conditions are met, including the following: the Tender Offer Support Agreement has not been changed or revoked, and there is no rational likelihood that the above agreement will be revised or revoked through to the end of the Tender Offer Period; and that the Tender Offer has not been withdrawn, and that there is no rational likelihood that the Tender Offer will be withdrawn.
 
In light of the above situation, the Company’s Board of Directors decided on August 19, 2011 to conduct the Tender Offer to make the Target Company a consolidated subsidiary, believing that this would enable both companies to enhance sustainable enterprise value and thus be the best option for all stakeholders, including shareholders and employees. The Company will bolster and accelerate revitalization support for the Target Company as a consolidated subsidiary in terms of sales, raw materials supply and overall business in China, all areas where the Company excels as a trading company, augmenting the Target Company's proprietary materials development, molding and other technologies and considerable growth prospects in China.
 
i) Name of Third Party Who Performed the Valuation
 
For the purpose of reference when determining the Tender Offer Price, the Company asked Mitsubishi UFJ Morgan Stanley Securities, a financial adviser, to conduct a valuation analysis of the Target Company's shares, as a third-party appraiser independent of the Company and the Target Company. (Mitsubishi UFJ Morgan Stanley Securities is not a related party of the Company, and does not have a material beneficial interest in the Tender Offer.)
 
ii) Overview of Opinion
 
Mitsubishi UFJ Morgan Stanley Securities used Market Price Analysis, Comparable Companies Analysis, and DCF Analysis to conduct a valuation analysis of the Target Company's shares. The Company received the valuation analysis from Mitsubishi UFJ Morgan Stanley Securities on August 17, 2011. (The Company did not receive a fairness opinion concerning the Tender Offer Price.) The range of valuations per share of the Target Company's common stock obtained using the abovementioned methods was as follows:
 
[Market Price Analysis]    
 
376 yen to 390 yen
 
[Comparable Companies Analysis]
 
201 yen to 508 yen
 
[DCF Analysis]
 
335 yen to 581 yen
 
iii) Course of Events Leading to Decision on Tender Offer Price Based on Said Opinion
 
While considering the results of the valuation analysis obtained from Mitsubishi UFJ Morgan Stanley Securities, the Company comprehensively considered the results of discussions and negotiations pertaining to the purchase of the Target Company's shares with the Target Company's largest shareholders, namely Target Company employee Akihito Watanabe, and Watanabe Kosan, and of due diligence (legal, accounting, taxation, etc.) of the Target Company, whether or not the Target Company would support the Tender Offer, the outlook for the result of the Tender Offer, trends in the market price of the Target Company's shares and other factors. The Board of Directors of the Company subsequently and ultimately decided on August 19, 2011 to set the Tender Offer Price at 386 per share.
 
(Measures Aimed to Ensure the Fairness of the Tender Offer, Including Measures Aimed to Ensure the Fairness of the Tender Offer Price and Measures to Avoid Conflicts of Interest)
 
The Company and the Target Company are taking the following measures as a means aimed to ensure the fairness of the Tender Offer, including measures aimed to ensure the fairness of the Tender Offer Price, and measures to avoid conflicts of interest.
 
i) Request for Valuation Analysis From an Independent Third-Party Appraiser
 
For the purpose of reference when determining the Tender Offer Price, the Company asked Mitsubishi UFJ Morgan Stanley Securities, a financial adviser, to conduct a valuation analysis of the Target Company's shares, as a third-party appraiser independent of the Company and the Target Company. (Mitsubishi UFJ Morgan Stanley Securities is not a related party of the Company, and does not have a material beneficial interest in the Tender Offer.)
 
Mitsubishi UFJ Morgan Stanley Securities used Market Price Analysis, Comparable Companies Analysis, and DCF Analysis to conduct a valuation analysis of the Target Company's shares. The Company received the valuation analysis from Mitsubishi UFJ Morgan Stanley Securities on August 17, 2011. (The Company did not receive a fairness opinion concerning the Tender Offer Price.) The range of valuations per share of the Target Company's common stock obtained using the abovementioned methods was as follows:
 
[Market Price Analysis]    
 
376 yen to 390 yen
 
[Comparable Companies Analysis]
 
201 yen to 508 yen
 
[DCF Analysis]
 
335 yen to 581 yen
 
With Market Price Analysis, the range of per-share values produced for the Target Company's common stock was 376 yen to 390 yen. This range was calculated based on a reference date of August 15, 2011 for transactions of the Target Company's common stock on JASDAQ directly before the Tender Offer announcement, and based on the 383 yen closing price on the reference date of the Target Company's common stock on JASDAQ, as well as the 384 yen average closing price (rounded) for the most recent one week on days when there were transactions, the 390 yen average closing price (rounded) for the most recent one month on days when there were transactions, and the 376 yen average closing price (rounded) for the most recent three months on days when there were transactions.
 
Under Comparable Companies Analysis, which considers the relationship between public market share prices and financial performance indicators showing profitability of listed companies which are engaged in a business comparably similar to that of the Target Company to arrive at an implied per-share value, the range of per-share values produced for the Target Company's common stock was 201 yen to 508 yen.
 
Under DCF Analysis, which analyzes estimated future free cash flows of the Target Company based on future earnings forecasts of the Target Company from the year ending December 31, 2011, taking into consideration factors such as the Target Company's business plans, recent operating performance and business environment, and discounts it back at a certain discount rate to the present enterprise value and equity value of the Target Company, the range of per-share values produced for the Target Company's common stock was 335 yen to 581 yen.
 
While considering the results of the valuation analysis obtained from Mitsubishi UFJ Morgan Stanley Securities, the Company comprehensively considered the results of discussions and negotiations pertaining to the purchase of the Target Company's shares with the Target Company's largest shareholders, namely Target Company employee Akihito Watanabe, and Watanabe Kosan, and of due diligence (legal, accounting, taxation, etc.) of the Target Company, whether or not the Target Company would support the Tender Offer, the outlook for the result of the Tender Offer, trends in the market price of the Target Company's shares and other factors. The Board of Directors of the Company subsequently and ultimately decided on August 19, 2011 to set the Tender Offer Price at 386 per share.
 
The Tender Offer Price of 386 yen per share represents a 1.0% discount (rounded to 1 decimal place) on the 390 yen closing price of the Target Company's common stock of regular transactions on JASDAQ on August 18, 2011, the business day directly before the announcement of the Tender Offer. It also represents a discount of 0.3% (rounded to 1 decimal place) on the 387 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past one week (the period from August 12 to August 18, 2011). Furthermore, it represents a 1.0% discount (rounded to 1 decimal place) on the 390 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past one month (the period from July 19 to August 18, 2011). However, it represents a premium of 2.4% (rounded to 1 decimal place) on the 377 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past three months (the period from May 19 to August 18, 2011). And it represents a premium of 3.8% (rounded to 1 decimal place) on the 372 yen simple average price (rounded) of the closing price of the Target Company's common stock of regular transactions for the past six months (the period from February 21 to August 18, 2011).
 
According to the Target Company, the Target Company obtained a valuation analysis of the Target Company’s common stock on August 18, 2011 from PWC, a third-party institution independent of the Target Company and the Company. The Target Company referred to this valuation analysis as the basis for studying the Tender Offer Price indicated by the Company was fair and appropriate. (The Target Company did not receive a fairness opinion concerning the Tender Offer Price from a third-party institution.) The appraisal result of the Target Company’s share price by PWC, is as follows, according to the aforementioned valuation analysis.
 
[Market Price Analysis]    
 
377 yen to 394 yen
 
[Comparable Companies Analysis]
 
371 yen to 471 yen
 
[DCF Analysis]
 
545 yen to 691 yen
 
PWC obtained documents and an explanation from the Target Company’s management team regarding the current state of business, future business plans and other matters, and based on this information calculated values for the shares of the Target Company under certain assumptions and conditions. In PWC’s valuation analysis report, PWC assumed that the Target Company was a going concern. PWC used Market Price Analysis, Comparable Companies Analysis, and Discounted Cash Flow (DCF) Analysis to conduct a valuation analysis of the Target Company's shares. Market Price Analysis is a method that appraises the share value based on the share price on the share market of the Target Company’s common stock. It was used because it was seen as an objective appraisal method for valuating listed company shares. Under Market Price Analysis, the valuation reference date was August 17, 2011. The valuation looked at recent share prices and trading volumes, the closing price (390 yen) of the Target Company’s common stock on JASDAQ on the reference date, and the average closing price in the 2 weeks, 1 month and 3 months leading up to the reference date (2-week average closing price: 384 yen (rounded); 1-month average closing price: 390 yen (rounded); and 3-month average closing price: 377 yen (rounded)), and weighted-average price (2-week weighted-average price: 382 yen (rounded); 1-month weighted-average price: 394 yen (rounded); and 3-month weighted-average price: 381 yen (rounded)). Using this method produced a range of 377 yen to 394 yen as the valuation per share for the Target Company’s common stock. Comparable Companies Analysis was used because it is believed to reflect the objectivity of share markets, as with Market Price Analysis, for using share prices and financial data of peer companies. Under Comparable Companies Analysis, PWC analyzed the comparable multiple by comparing with comparable listed companies. Using this method produced a range of 371 yen to 471 yen as the valuation per share for the Target Company’s common stock. DCF Analysis was used because it is thought to be a method suited to assessing a going concern since it is a valuation method based on a company’s future cash flows (earnings power). Under DCF Analysis, future cash flows calculated based on the Target Company’s business plans from the fiscal year ending December 31, 2011 through the fiscal year ending December 31, 2013 are discounted back at a certain discount rate to present value to assess enterprise value. Using this method produced a range of 545 yen to 691 yen as the valuation per share for the Target Company’s common stock.
 
ii) Advice From a Law Firm
 
According to the Target Company, the board of directors of the Target Company obtained necessary legal advice from Mori Hamada & Matsumoto, legal advisor to the Target Company, as a means aimed to ensure the fairness of the decision-making process when the Tender Offer was discussed and a decision made.
 
(iii) Approval by all of the Target Company’s Directors and Corporate Auditors
 
According to the Target Company, a meeting of the Target Company’s board of directors was held on August 19, 2011, in which all the Target Company’s directors participated in discussions and resolutions. At the meeting, the Target Company passed a resolution expressing unanimous support for the Tender Offer while leaving it to shareholders to decide for themselves whether or not to tender their shares responding to the Tender Offer. According to the Target Company, the reasons for this resolution are stated in “(1) Outline of the Tender Offer” of “1. Purpose of the Tender Offer” above. Furthermore, all of the corporate auditors of the Target Company attended the above meeting of the board of directors, and expressed a unanimous opinion to the effect that they had no objection to the resolution adopted at the meeting of the board of directors.
 
3) Relationship With the Appraiser
 
Mitsubishi UFJ Morgan Stanley Securities, the Company's financial advisor (appraiser), does not fall under the category of "related party" of the Company, and does not have a material beneficial interest in the Tender Offer.
 
(5) Expected Number of Shares, etc. to Be Purchased in the Tender Offer
 
Expected Number of Shares to Be Purchased
Minimum Number of Shares to Be Purchased
Maximum Number of Shares to Be Purchased
8,778,000 shares
8,778,000 shares
 
 
(Note 1) If the total number of tendered shares is less than the minimum number of shares to be purchased (of 8,778,000 shares), the Company will not purchase all the tendered shares. However, if the total number of tendered shares exceeds the minimum number of shares to be purchased, the Company will purchase all the tendered shares.
 
(Note 2) The Company will not purchase any treasury stock held by the Target Company through the Tender Offer.
 
(Note 3) The maximum number of stock certificates, etc. of the Target Company that the Tender Offeror will purchase through the Tender Offer (hereinafter the "Maximum Number of Shares") shall be 18,260,298 shares. This number was obtained by subtracting the treasury shares (of 890,902 shares) owned by the Target Company as of June 30, 2011, as stated in the Interim Report for the 52nd Period filed by the Target Company on August 12, 2011, and the Target Company shares (of 1,888,800 shares) owned by the Company as of today from the total number of issued shares (of 21,040,000) as of June 30, 2011 in the same report.
 
(Note 4) Shares constituting less than one unit are also subject to the Tender Offer. If shareholders exercise their right to request purchase of shares constituting less than one unit in accordance with the Companies Act of Japan, the Target Company may purchase its own shares during the Tender Offer Period in accordance with the procedures prescribed by law.
 
(6) Proportion of Ownership of Shares, etc. After the Tender Offer
 
Number of Voting Rights Represented by Shares, etc. Owned by the Tender Offeror before the Tender Offer
18,888
(Share Ownership of Shares, etc. before the Tender Offer: 9.37%)
Number of Voting Rights Represented by Shares, etc., Owned by Parties having Special Relationship with the Tender Offeror before the Tender Offer
Unknown at the this stage
(Share Ownership of Shares, etc. before the Tender Offer: Unknown at the this stage)
Number of Voting Rights Represented by Shares, etc. to be Purchased
87,780
(Share Ownership of Shares, etc. after the Tender Offer: 52.94%)
Total Number of Voting Rights of All Shareholders of the Target Company
201,481
 
 
 
(Note 1) “Number of Voting Rights Represented by Shares, etc. to be Purchased” is the number of voting rights attached to the 8,778,000 shares expected to be purchased in the Tender Offer.
 
(Note 2) “Number of Voting Rights Represented by Shares, etc., Owned by Parties having Special Relationship with the Tender Offeror Before the Tender Offer” is unknown as of today. This number will be disclosed after further surveying by the Tender Offer commencement date on September 5, 2011.
 
(Note 3) “Total Number of Voting Rights of All Shareholders of the Target Company” is based on the total number of voting rights of all shareholders as of June 30, 2011, as stated in the Target Company's Interim Report for the 52nd Period filed on August 12, 2011. However, since shares constituting less than one unit are subject to the Tender Offer, the calculation of “Share Ownership of Shares, etc. after the Tender Offer,” uses as the denominator 201,490, which is the number of voting rights concerning the number of shares (20,149,098 shares), calculated as the total number of issued shares of the Target Company (21,040,000 shares) as of June 30, 2011, as stated in the Interim Report above, less treasury shares (of 890,902 shares) owned by the Target Company as of June 30, 2011, as stated in the same report. (One voting unit of shares of the Target Company is 100 shares.)
 
(Note 4) The “Share Ownership of Shares, etc. before the Tender Offer” and the Share Ownership of Shares, etc. after the Tender Offer” are rounded to two decimal points.
 
(7) Funds, Etc. Required for the Tender Offer
 
3,388,308,000 yen
 
(Note) The above amount is the Tender Offer Price per share (of 386 yen) multiplied by the 8,778,000 shares expected to be purchased in the Tender Offer. However, if the total number of tendered shares exceeds the minimum number of shares to be purchased, the Company will purchase all the tendered shares. The funds required for the Tender Offer will therefore amount to 7,048,475,028 yen if the Maximum Number of Shares (of 18,260,298 shares) is purchased.
 
(8) Method of Settlement
 
1) Name and Location of Head Office of Securities Company, Bank, etc. to Settle the Tender Offer
 
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
 
5-2, Marunouchi 2-chome, Chiyoda-ku, Tokyo
 
2) Commencement Date of Settlement
 
October 26, 2011 (Wednesday)
 
3) Settlement Procedure
 
Promptly after the end of the Tender Offer Period, a notice of purchase will be mailed to the address or location of shareholders wishing to tender their shares in the Tender Offer (the "Tendering Shareholders") (or to the address or location of the standing proxy in the case of non-resident shareholders).
 
Payment of the purchase price will be made in cash. The Tender Offer Agent will, in accordance with the Tendering Shareholder's instructions, remit to the account designated by the Tendering Shareholder (or the standing proxy in the case of non-resident shareholders) the purchase price for shares promptly after the commencement date of settlement.
 
4) Method for Returning Share Certificates
 
If all the tendered shares are not purchased, in accordance with “1) Existence and Details of Conditions Listed under Paragraph 4 of Article 27-13 of the Act” and “2) Existence of Conditions for Withdrawal, etc. of the Tender Offer, Details Thereof, and Manner of Disclosing Withdrawal, etc.” of “(9) Other Conditions and Procedures Relating to the Tender Offer” below, shares to be returned will be returned by restoring the original record as at the same time immediately before application to the Tender Offer soon after the commencement date of settlement (or the day of withdrawal, if the Tender Offer is withdrawn). 
 
(9) Other Conditions and Procedures Relating to the Tender Offer
 
1) Existence and Details of Conditions Listed under Paragraph 4 of Article 27-13 of the Act
 
If the total number of tendered shares is less than the minimum number of shares to be purchased (of 8,778,000 shares), the Company will not purchase all the tendered shares. However, if the total number of tendered shares exceeds the minimum number of shares to be purchased (of 8,778,000 shares), the Company will purchase all the tendered shares.
 
2) Existence of Conditions for Withdrawal, etc. of the Tender Offer, Details Thereof, and Manner of Disclosing Withdrawal, etc.
 
Upon the occurrence of any event listed in Article 14, Paragraph 1, Items 1.1 through 1.9, Items 1.12 through 1.18 and Items 3.1 through 3.8 and 3.10, and Items 4 and 5, as well as Article 14, Paragraph 2, Items 3 through 6 of the Enforcement Order of the Financial Instruments and Exchange Act (Cabinet Order No. 321 of 1965, as amended) (the "Enforcement Order"), the Company may withdraw the Tender Offer during the Tender Offer Period. In the Tender Offer, facts equivalent to facts listed from 1.1 through 1.9, as specified in the Article 14, Paragraph 1, Item 3.10 of the Enforcement Order, shall refer to cases that fall under any of the following:
 
(i) False description regarding important matters or incomplete disclosure of important matters is discovered in mandatory disclosure documents filed by the Target Company in the past.
 
(ii) The occurrence of facts listed in Article 14, Paragraph 1, Items 3.1 through 3.9 of the Enforcement Order in respect of important subsidiaries of the Target Company.
 
Furthermore, in accordance with Article 10, Paragraph 2 of the Act Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade (Act No. 54 of 1947, including subsequent amendments; hereinafter “the Anti-Monopoly Act”), the Tender Offeror must submit a plan in advance concerning the purchase of shares by tender offer (hereinafter “the Share Purchase”) to the Japan Fair Trade Commission (hereinafter “Prior Notice”), and according to Paragraph 8 of the same Article, cannot purchase the Target Company’s share until 30 days have elapsed from the date of receipt of the Prior Notice (although this may be shortened in certain situations) (hereinafter “Trading Prohibition Period”).
 
Article 10, Paragraph 1 of the Anti-Monopoly Act prohibits the purchase of shares of another company that will effectively restrict competition in a certain trading field. The Japan Fair Trade Commission can take any other measures necessary to eliminate such acts in violation of the said provisions (Article 17-2, Paragraph 1, hereinafter “Cease and Desist Order”). When the Japan Fair Trade Commission issues a Cease and Desist Order in the case of the aforementioned Prior Notice, the Japan Fair Trade Commission must notify the party of the details of the planned Cease and Desist Order (Article 49, Paragraph 5; hereinafter “Prior Notice of Cease and Desist Order”). A Prior Notice of Cease and Desist Order concerning the purchase of shares may be issued with, in principle, 30 days from the date of receipt of the abovementioned Prior Notice, but such period may be extended or shortened (hereinafter “Cease and Desist Period”) (Article 10, Paragraph 9). Furthermore, if the Japan Fair Trade Commission decides not to issue a Prior Notice of Cease and Desist Order, it shall notify of that intent (hereinafter “Notification Not to Order Cease and Desist”) (“Rules on Applications for Approval, Reporting, Notification, etc. Pursuant to the Provisions of Articles 9 to 16 of the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade” (Fair Trade Commission Rule No. 1 of 1953)).
 
The Tender Offeror submitted a Prior Notice regarding the Tender Offer to the Japan Fair Trade Commission on August 15, 2011 and it was received the same day. Accordingly, in principle, the Trading Prohibition Period relating to the Tender Offer is scheduled to end on September 15, 2011. Furthermore, as of today, the Tender Offeror had not received either a Prior Notice of Cease and Desist Order or a Notification Not to Order Cease and Desist from the Japan Fair Trade Commission.
 
If the Tender Offeror receives a Prior Notice of Cease and Desist Order up until the day before expiration of the Tender Offer Period (including extensions), from the Japan Fair Trade Commission, ordering the disposal of all or some of the Target Company’s shares or transfer of some businesses in relation to the Prior Notice to the Japan Fair Trade Commission, or the Cease and Desist Period has not ended, or the Company receives a temporary restraining order from a court of law for an alleged breach of the provisions of Article 10, Paragraph 1 of the Anti-Monopoly Act, the Company may withdraw the Tender Offer upon the occurrence of an event of events specified in Article 14, Paragraph 1, Item 4 of the Enforcement Order. Moreover, if the Tender Offeror receives a Notification Not to Order Cease and Desist from the Japan Fair Trade Commission or the Cease and Desist Period ends without a request for prior notice in accordance with Article 49, Paragraph 5 of the Anti-Monopoly Act or report in accordance with Article 10, Paragraph 9 of the same Act, the Tender Offeror shall submit an Amendment Statement immediately in accordance with Article 27, Paragraph 8, Item 2 of the Act.
 
Should the Company intend to withdraw the Tender Offer, the Company will give public notice thereof through electronic disclosure and publish such fact in the Nihon Keizai Shimbun; provided, however, that if it is impracticable to give such notice within the Tender Offer Period, the Company will make a public announcement pursuant to Article 20 of the Cabinet Office Ordinance regarding Disclosure of Tender Offers of Shares and Other Securities by Non-Issuers (Ministry of Finance Ordinance No. 38 of 1990, as amended) (the "Cabinet Office Ordinance") and give public notice forthwith.
 
3) Existence of Conditions for Reducing the Tender Offer Price, Details Thereof, and Manner of Disclosing Reduction
 
Pursuant to Article 27-6, Paragraph 1, Item 1 of the Act, if the Target Company takes any action enumerated in Article 13, Paragraph 1 of the Enforcement Order during the Tender Offer Period, the Company may reduce the purchase price of the Tender Offer in accordance with the standards prescribed by the provisions of Article 19, Paragraph 1 of the Cabinet Officer Ordinance. Should the Company intend to reduce the purchase price of the Tender Offer, the Company will give public notice thereof through electronic disclosure and publish such fact in the Nihon Keizai Shimbun; provided, however, that, if it is impracticable to give such notice within the Tender Offer Period, the Company will make a public announcement pursuant to Article 20 of the Cabinet Office Ordinance and give public notice forthwith. If the purchase price is reduced, the Company will purchase any and all shares or other securities tendered on and prior to such public notice at the reduced purchase price.
 
4) Matters Regarding Right of Tendering Shareholders, etc. to Cancel Agreement
 
Tendering Shareholders may, at any time during the Tender Offer Period, cancel an application for the Tender Offer. In the event of cancellation, the Tendering Shareholders must hand-deliver or send by postal mail a written request for the cancellation of the application for the Tender Offer (the “Written Request for Cancellation”), enclosing the Receipt of Application for the Tender Offer, by 16:00 on the last day of the Tender Offer Period to the head office or a nationwide branch of the entity specified below. The cancellation of the application shall be effective when the Written Request for Cancellation is handed to or is delivered to the entity designated below. However, if the request is sent by postal mail, the Written Request for Cancellation will not be effective unless it is delivered to the entity specified below by 16:00 on the last day of the Tender Offer Period.
 
Entity authorized to receive Written Request for Cancellation:
 
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
 
5-2, Marunouchi 2-chome, Chiyoda-ku, Tokyo
 
(and nationwide branches of Mitsubishi UFJ Morgan Stanley Securities)
 
No compensation for damages or penalty payments will be claimed against any Tendering Shareholder by the Tender Offeror in the event that the application by the Tendering Shareholder is canceled. The cost of returning the share certificates held by the Tender Offeror will be borne by the Tender Offeror.
 
5) Manner of Disclosure in Case of a Modification of Conditions, etc. of the Tender Offer
 
Except in instances forbidden under Article 27, Paragraph 6-1 of the Act and Article 13 of the Enforcement Order, the Tender Offeror may change the conditions or other terms of the Tender Offer during the Tender Offer Period.
 
Should any terms or conditions of the Tender Offer be changed, the Company will give public notice thereof through electronic disclosure and publish such fact in the Nihon Keizai Shimbun; provided, however, that, if it is impracticable to make such notice within the Tender Offer Period, the Company will make a public announcement in accordance with Article 20 of the Cabinet Office Ordinance and give public notice forthwith. The purchase of the shares tendered on or prior to such public notice will also be carried out in accordance with the amended terms and conditions.
 
6) Manner of Disclosure upon Filing of an Amendment to the Registration Statement
 
Except in the circumstances provided for under the provisions of Article 27-8, Paragraph 11 of the Act, if an Amendment Statement is submitted to the Director-General of the Kanto Local Finance Bureau, the Tender Offeror will forthwith make a public announcement of the contents thereof, to the extent relevant to the contents of the public notice of the Tender Offer, in accordance with the procedures set forth in Article 20 of the Cabinet Office Ordinance. The Company will also forthwith amend the Tender Offer Explanatory Statement and provide an Amended Tender Offer Explanatory Statement to the Tendering Shareholders who received the previous Tender Offer Explanatory Statement. If, however, the amendments are limited, the Company, instead of providing an Amended Tender Offer Explanatory Statement, may prepare and deliver to the Tendering Shareholders a document stating the reason(s) for the amendments, the matters amended and the details of such amendments.
 
7) Manner of Disclosure of Results of the Tender Offer
 
The Company, on the day following the last day of the Tender Offer Period, will make a public announcement regarding the results of the Tender Offer in accordance with Article 9-4 of the Enforcement Order and Article 30-2 of the Cabinet Office Ordinance.
 
8) Other
 
This Tender Offer shall not, directly or indirectly, be conducted in or targeted at the U.S. Moreover, U.S. postal mail service or another method/means of interstate commerce or international commerce (including, without limitation, telephone, telex, facsimile, e-mail and Internet communication) shall not be used to conduct the Tender Offer, and the Tender Offer shall not be conducted through any U.S. stock exchange facility. Additionally, no application for this Tender Offer shall be made (i) by any of the aforementioned methods/means, (ii) through the aforementioned facilities or (iii) from the U.S.
 
Further, the Tender Offer Registration Statement, or the tender documents related to the Registration Statement, shall not be sent or distributed to, in or from the U.S. by mail or any other method. Any application for the Tender Offer in violation of any the aforementioned restrictions, either directly or indirectly, will not be accepted.
 
At the time of tender, Tendering Shareholders (standing proxies for non-resident shareholders) may be requested to provide the Tender Offer Agent, with representations and warranties that state the following:
 
i) The Tendering Shareholders are not located or do not reside in the U.S., both at the time of applying for the Tender Offer and at the time of the sending of the Application Form for the Tender Offer; ii) The Tendering Shareholders are not, directly or indirectly, receiving or sending out any information (including copies) related to this Tender Offer to, in or from the U.S.; iii) The Tendering Shareholders have not and will not use, directly or indirectly, in connection with the signature and submission of the Application Form for the Tender Offer, (i) U.S. postal mail service or other method/means of interstate commerce or international commerce (including, without limitation, telephone, telex, facsimile, e-mail and Internet communication) or (ii) any U.S. stock exchange facility; and iv) The Tendering Shareholders are not acting as proxy for any other person without investment discretion or acting as trustee/fiduciary of any other person (not including those who are giving instructions on the tendering of shares from outside the U.S.).
 
(10) Date of Public Notice
 
September 5, 2011 (Monday)
 
(11) Tender Offer Agent
 
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
 
5-2, Marunouchi 2-chome, Chiyoda-ku, Tokyo
 
3. Policy Following the Tender Offer and Future Outlook
 
(1) Policy Following the Tender Offer
 
Please refer to "1. Purpose of the Tender Offer" above with respect to the policy following the Tender Offer.
 
(2) Future Outlook
 
The Company is currently looking at the impact of the Tender Offer on its operating results forecasts for the year ending March 2012, and will promptly make a further announcement if it is necessary to revise its forecasts or make any other disclosure.
 
4. Other
 
(1) Existence of agreements between the Tender Offeror and the Target Company or its officers and details of any such agreements
 
According to the Target Company, a meeting of the Target Company’s board of directors was held on August 19, 2011, in which all the Target Company’s directors participated in discussions and resolutions. At the meeting, the Target Company passed a resolution expressing unanimous support for the Tender Offer while leaving it to shareholders to decide for themselves whether or not to tender their shares responding to the Tender Offer. According to the Target Company, the reasons for this resolution are stated in “(1) Outline of the Tender Offer” of “1. Purpose of the Tender Offer” above. Furthermore, all of the corporate auditors of the Target Company attended the above meeting of the board of directors, and expressed a unanimous opinion to the effect that they had no objection to the resolution adopted at the meeting of the board of directors.
 
As of August 19, 2011, Mr. Susumu Ukawa, the current president of the Target Company, is scheduled to remain at the helm of management as the Target Company’s president even after the Tender Offer is completed.
 
(2) Other information deemed necessary for investors to determine whether or not to support in the Tender Offer
 
1) Announcement of Notice Concerning Revision of Business Forecasts on July 28, 2011
 
On July 28, 2011, the Target Company announced the “Notice Concerning Revision of Business Forecasts” through the Osaka Securities Exchange Co., Ltd. The following is an overview of the Target Company’s revised business forecasts based on the announcement. Please note that the following overview contains only excerpts from the announcement, and the Company is not in a position to independently verify the accuracy or validity of this content, and has not undertaken such verification. For details, please refer to the press announcement.
 
(a) Revision of Consolidated Business Forecasts for the First Six Months of the Year Ending December 31, 2011
(January 1, 2011 to June 30, 2011)
 
 
Net Sales
Operating Income
Ordinary Income
Net Income
Net Income per Share
Previous forecast (A)
Million yen
Million yen
Million yen
Million yen
Yen
31,000
1,200
600
500
24.82
Revised forecast (B)
28,906
833
694
171
8.49
Change (B-A)
(2,094)
(367)
94
(329)
 
Change (%)
(6.8)
(30.6)
15.7
(65.8)
 
(Reference)
Results for first six months of year ended December 31, 2010
30,268
1,122
815
986
48.95
 
 
(b) Revision of Consolidated Business Forecasts for the Year Ending December 31, 2011
(January 1, 2011 to December 31, 2011)
 
 
Net Sales
Operating Income
Ordinary Income
Net Income
Net Income per Share
Previous forecast (A)
Million yen
Million yen
Million yen
Million yen
Yen
66,000
3,200
2,400
2,000
99.26
Revised forecast (B)
65,600
3,000
2,200
1,400
69.48
Change (B-A)
(400)
(200)
(200)
(600)
 
Change (%)
(0.6)
(6.3)
(8.3)
(30.0)
 
(Reference)
Results for year ended December 31, 2010
64,699
3,129
2,391
1,961
97.33
 
(c) Revision of Non-Consolidated Business Forecasts for the First Six Months of the Year Ending December 31, 2011
(January 1, 2011 to June 30, 2011)
 
 
 
Net Sales
Operating Income
Ordinary Income
Net Income
Net Income per Share
Previous forecast (A)
Million yen
Million yen
Million yen
Million yen
Yen
28,000
1,000
600
500
24.82
Revised forecast (B)
26,439
735
522
158
7.88
Change (B-A)
(1,561)
(265)
(78)
(342)
 
Change (%)
(5.6)
(26.5)
(13.0)
(68.4)
 
(Reference)
Results for first six months of year ended December 31, 2010
27,955
898
682
746
37.03
 
(d) Revision of Non-Consolidated Business Forecasts for the Year Ending December 31, 2011
(January 1, 2011 to December 31, 2011)
 
 
Net Sales
Operating Income
Ordinary Income
Net Income
Net Income per Share
Previous forecast (A)
Million yen
Million yen
Million yen
Million yen
Yen
60,000
2,900
2,100
1,900
94.30
Revised forecast (B)
59,400
2,600
2,000
1,300
64.52
Change (B-A)
(600)
(300)
(100)
(600)
 
Change (%)
(1.0)
(10.3)
(4.8)
(31.6)
 
(Reference)
Results for year ended December 31, 2010
59,867
2,549
2,046
2,502
124.19
 
(2) “Notice Concerning Revision of Dividend Forecast” Announced on August 8, 2011
 
On August 8, 2011, the Target Company announced the “Notice Concerning Revision of Dividend Forecast” through the Osaka Securities Exchange Co., Ltd. According to the announcement, at a board of directors’ meeting held on August 8, the Target Company resolved to pay no interim dividend for the first half of the fiscal year ending December 31, 2011. The Target Company said that it has yet to decide on a year-end dividend for the fiscal year ending December 31, 2011, and that it would consider the year-end dividend while closely monitoring future business performance. For details, please refer to the press announcement.

 
###
* Please note that a person receiving information concerning the Tender Offer through this Press Release may be prohibited from purchasing the share certificates and other securities of Chuo Kagaku Co., Ltd. until twelve (12) hours have elapsed after the announcement of this Press Release (announcement of this Press Release shall be deemed to be the time at which this Press Release is disclosed through the service for inspection of disclosed information by Tokyo Stock Exchange during the afternoon of August 19, 2011) as a recipient of primary information concerning insider trading regulations in accordance with the provisions of Paragraph 3 of Article 167 of the Financial Instruments and Exchange Act and Article 30 of the Financial Instruments and Exchange Act Enforcement Order. If a person is subject to criminal, civil or administrative liability as a result of such purchase mentioned above, please note that the Company shall assume no responsibility therefor.
 
* This Press Release is for public announcement of the Tender Offer, and the Press Release has not been prepared for the purpose of soliciting offers to sell shares. If you would like to offer your shares for sale in the Tender Offer, please ensure that you review the Tender Offer Explanatory Statement prepared by the Company prior to offering your shares for sale at your own discretion. This Press Release shall neither be, nor constitute a part of, an offer to sell or a solicitation thereof or a solicitation of an offer to purchase, any securities. Moreover, this Press Release (or any part thereof) and the distribution thereof shall not be interpreted to be the basis of any agreement in relation to the Tender Offer, and this Press Release should not be relied on at the time any such agreement is concluded.
 
This Tender Offer shall not, directly or indirectly, be conducted in or targeted at the U.S. Moreover, U.S. postal mail service or another method/means of interstate commerce or international commerce (including, without limitation, telephone, telex, facsimile, e-mail and Internet communication) shall not be used to conduct the Tender Offer, and the Tender Offer shall not be conducted through any U.S. stock exchange facility.  Additionally, no application for this Tender Offer shall be made (i) by any of the aforementioned methods/means, (ii) through the aforementioned facilities or (iii) from the U.S. Further, the press release concerning the Tender Offer, or the related tender documents, shall not be sent or distributed to, in or from the U.S. by mail or any other method. Any application for the Tender Offer in violation of any the aforementioned restrictions, either directly or indirectly, will not be accepted. The Company does not solicit the purchase of marketable securities or other equivalent instruments to U.S. residents or within the U.S. The Company will not accept any marketable securities or other equivalent instruments sent from U.S. residents or from within the U.S.
 
There may be some nations or regions that legally restrict or limit the announcement, issuance or distribution of this Press Release. In such case, you are requested to take note of those restrictions or limitations and comply with any and all laws and regulations of such nations or regions. In nations or regions where the implementation of the Tender Offer is illegal, receipt by you of this Press Release shall not be deemed as an offer to purchase, or a solicitation of an offer to sell, the shares in connection with the Tender Offer, but shall be deemed as receipt of information distributed for reference purposes only.
 
The details of the Japanese press release shall take precedence if there is a difference or other conflict between the content of the Japanese press release and the content of the English translation of that press release.
 

Inquiry Recipient

Mitsubishi Corporation
Telephone:+81-3-3210-2171 / Facsimile:+81-3-5252-7705
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