Battered Snow Brand sees shares soar

Shares in Japan's scandal-racked Snow Brand Milk Products soared in Tuesday trade after a weekend report that the company might form an alliance with three domestic dairy operators.

The report sent shares in Snow Brand Milk, Japan's largest dairy products manufacturer, up as much as 24 per cent in morning trade, and pushed its battered meat-packing subsidiary Snow Brand Food up as much as 67 per cent.

On Saturday, informed sources were quoted as telling Kyodo news agency that Snow Brand Milk was considering forming an alliance with the National Federation of Agricultural Cooperative Associations (Zenno), the National Federation of Dairy Cooperative Associations (Zenrakuren) and Kyodo Milk Industry.

The tie-up could include allowing the three operators to use Snow Brand's milk production facilities, the report said.

The Nihon Keizai Shimbun daily also reported on Saturday that Snow Brand was in talks with Zenno on a wide-ranging tie-up that could include joint production and distribution.

Snow Brand Milk's sales and reputation have taken a beating since the revelation last month of a beef scam at Snow Brand Food, of which it owns 65 per cent.

The subsidiary, Japan's sixth-largest meat packer, admitted it had labelled Australian beef as Japanese to take advantage of a government buy-back scheme.

Even before the beef scandal, Snow Brand Milk had been struggling to rebuild its image following an outbreak of food poisoning that made about 10,000 people ill in 2000.

Snow Brand has seen its products pulled from shelves at many stores following the beef scandal.

The Kyodo report said the negotiations between Snow Brand and the three operators were partially spurred by concerns from Japan's Agriculture Ministry and the ruling Liberal Democratic Party that Snow Brand might form a capital alliance with a foreign firm in an attempt to revitalise its business.

Ministry officials are reported to be worried that a foreign company might close non-performing operations and destabilise the struggling domestic dairy industry.

The ministry has denied it would block any attempt to seek a foreign alliance. Nestle Japan Holdings, the wholly owned Japanese unit of Swiss giant Nestle, was mentioned in media reports last week as a possible alliance partner, along with Japan's third-largest trading house, Itochu.

Shares in Snow Brand Milk closed the morning session up 18.4 per cent at 148 yen, while Snow Brand Food was up 46.5 per cent at 63 yen. The benchmark Nikkei average was up 2.33 per cent.

The rises in the share prices came despite a Snow Brand Food official's admission on Saturday that the meat-packer had also falsely labelled imported pork as domestic meat.