TOKYO — As negotiations of a merger between two of Japan’s largest cosmetics firms drag on, one may ultimately wind up the loser.

This story first appeared in the January 30, 2004 issue of WWD. Subscribe Today.

“As the negotiation [between Kao Corp. and Kanebo Ltd.] takes longer, it will become unfavorable for Kanebo,” said industry sources.

While Kanebo is Japan’s second largest cosmetics firm with annual sales of $2 billion, sources pointed to its struggle with interest-bearing liabilities as a possible reason for the delay of the merger process.

Kao and Kanebo postponed for a second time a final agreement to integrate their cosmetics operations. The two firms announced in October to merge their cosmetics business by 2007, but last month delayed the signing to the end of January from the end of December. “A bit more time is needed to finalize the agreement on details,” said the firms in the statement.

Kao, the nation’s largest household products manufacturer, makes Sofina cosmetics, a business that generates annual sales of approximately $710 million.