Tokyo stocks in the week to February 18, 2008

Tokyo rebounded in the week to February 18. The Nikkei 225 rose 4.7%, to close at the 13,600 level, while the Topix index was up 4.8%. The market posted a robust daily gain on February 14 after the Japanese government reported that Gross Domestic Product between October and December 2007 grew an annualized 3.7% from the prior quarter, significantly above the consensus projection of a 1.5% increase. Helped by the advance of export-oriented autos and technology issues, as well as capital investment-related stocks, machinery companies also saw a good week. The recent selling spree of Japanese stocks by international investors passed its peak. However, the pharmaceutical index gained 0.9%, underperforming the market.

Toyama leapt 36.8% on the report of a takeover by Fujifilm Holdings at an estimated cost of more than 100.0 billion yen ($920.0 million; see page 2). The manufacturer of digital camera and medical equipment hopes the acquisition will help it enter the health care and pharmaceutical area. The deal, which is expected to close between February and March, will take the form of a tender offer as well as the purchase of new shares to be issued by Toyama in a private placement. Fujifilm intends to purchase all shares tendered except the 21.8% stake held by Taisho which has a joint venture with Toyama for prescription drug marketing. Investors expect that the alliance with Fujifilm will increase financial and human resources available for the drugmaker, expediting its new drug development and cutting the risk of earnings decline.

The takeover did not help Taisho, which was off 1.8%. The firm intends to raise its stake in Toyama to 34% through a tender offer and by buying new shares at an estimated cost of 30.0 billion yen. Taisho's share performance also did not respond to its decision to acquire a maximum 62.0% stake in Osaka-listed Biofermin for 27.3 billion yen. The firm specializes in lactic acid-based drugs for the improvement of intestinal disorders and Takeda (which has a 10.01% stake) has been the domestic marketer of its products. Taisho plans to utilize the lactic acid technology to enhance its product line-up and new drug pipeline.