The acquisition is set to quadruple Kao's cosmetic sales to ¥288 billion, a move that will make it the country's second biggest player after Shiseido. But more importantly the deal also gives the company a step up into the global market-place, where Shiseido has been well ahead of the Japanese competition.
Kao will take the cosmetics division, whereas three buyout groups will get the remaining consumer operations, which include health, food, confectionery and toiletry manufacturing.
Kanebo had been valued at around ¥400 billion, the price offered by Kao for the cosmetics division last year. But press reports have speculated that the minimum purchase price for Kanebo would be as much as ¥430 billion, in view of the company's improved financial performance.
Analysts believe that this will be a big step for the consumer goods player into the arena, which currently derives only 8 per cent of its ¥483 billion 2005 turnover from personal care.
Kao is currently the maker of cosmetics brands such as Asience hair care and Sofina skin care products. Kanebo is forecasting annual sales of nearly ¥200 billion this year and markets around 60 brands, including Silk Soap and the Raphatie skin care range.
Currently it is French player L'Oreal that is the world's largest player. But with heavy growth in recent years, it is now limited in its scope, leaving room for other players to catchy up. Indeed, L'Oreal dropped out of the bidding process for Kanebo last month, stating that the business did not provide it with enough synergies.
Kao has made a move to increase its overseas presence this year, having purchased British company Molton Brown in July of this year for an estimated £170 million (€250m).
Molton Brown describes itself as a modern luxury goods company, but has evolved with a focus on up-market personal care products and had a turnover of £45 million last year.
The bidding has been overseen by The Industrial Revitalisation Corporation (IRC), the government bailout body which has been managing the operation of the company since it went into receivership following an accounting scandal that became public knowledge two years ago.
Kao had already made a failed attempt to buy up Kanebo before the IRC took over the bidding process and rehabilitation of the company. A spokesperson from the IRC said that Kao had been chosen because the company had put in by far the highest bid.