Japanese merger poisoned by Chinese dumplings scare

by Kyoko Hasegawa
Feb 6, 2008

(AFP) - One of Japan's leading food companies announced Wednesday it was pulling out of a high-profile merger involving the group that imported Chinese-made dumplings containing pesticide.

The move by Nissin Food Products Co., famous for pioneering instant noodles in the 1950s, is the biggest indication yet of the fallout to business from the health scare shaking Japan.

Thousands of Japanese have complained of illness -- with 10 diagnosed with pesticide poisoning -- after eating frozen meat dumplings which were made at a plant near the Chinese capital Beijing.

A Japanese team said on Wednesday it found no problems on a tour of the factory as a Chinese official visiting Tokyo made an emotional appeal for Japan not to jump to conclusions.

The dumplings were sold by a unit of Japan Tobacco Inc. (JT). The company, looking to branch out amid dwindling tobacco sales, agreed in November to merge its frozen food business with Nissin Food.

But Nissin said its board decided to cancel the deal with the now scandal-tainted tobacco giant.

"When food poisoning takes place, it is a universal rule that foodmakers should immediately take action, such as a recall," Nissin Food president Koki Ando told a news conference.

"But there seems to be a fundamental difference between us and JT about food safety issues," Ando said.

The tobacco company has been denounced for waiting one month to reveal the pesticide discovery, saying it needed time to verify that customers' illnesses were linked to the dumplings.

"From the bottom of my heart, I apologise for causing concerns about food safety," JT president Hiroshi Kimura told a separate news conference.

Under the proposed deal, JT last year bought major frozen food maker Katokichi Co. Ltd in a friendly one billion-dollar takeover. Nissin was then supposed to buy a 49 percent stake in Katokichi from the tobacco company, and then the three firms were to merge frozen-food operations.

China has been hit by a string of scandals over its products, raising fears for the massive manufacturing industry behind the nation's soaring growth.

Li Chunfeng, head of a Chinese delegation that held talks in Tokyo on the issue, denied suggestions by Japan's health minister, Yoichi Masuzoe, that the poisoning was deliberate, saying security was tight at factories.

"Today is the eve of the Lunar New Year in China. More than one billion people will eat dumplings tonight," he said. "I will eat dumplings myself tonight once I get back to Beijing."

"I hope the Japanese media will trust the governments both of Japan and China and report on this with calm," he said, nearly shedding tears.

China is Japan's largest trading partner and its second biggest supplier of imported food.

Japanese police said they found high levels of a pesticide, methamidophos, in dumplings made by Tianyang Food Co. near Beijing.

Another distributor, Japanese Consumers' Co-operative Union, revealed that a second pesticide, dichlorvos, was also found on dumplings made by the Tianyang factory.

But a Japanese team toured the factory and found no abnormalities.

"The factory was clean and well-kept, and we did not find any problems during our tour," said Taiji Harashima, head of the Cabinet Office's Consumer Policy Division, as quoted by Kyodo News.

The market appeared relatively unconcerned about the effects on JT of the Nissin pullout.

JT shares fell 0.87 percent to 572,000 yen, performing better than the benchmark Nikkei-225 index which plummeted 4.70 percent on concerns over the state of the US economy.

Shares in Nissin, however, plunged 7.82 percent to 3,300 yen.

JT has been on a major expansion campaign. Last year it bought British rival Gallaher, behind brands such as Benson and Hedges and Silk Cut, for 19 billion dollars in the biggest-ever foreign acquisition by a Japanese firm.