Kadokawa Group is reportedly finalising negotiations to purchase a 40% stake in Nippon Herald and to acquire Herald's local distribution network.

The news was reported in Japan's Nihon Keizai Shimbun.

Despite distributing the three Lord Of The Rings films together with Shochiku, Herald is forecasting a loss of $9.5m (Y1.06bn) for the fiscal year ending in March.

In December the company announced that it planned to reduce its acquisition of major Hollywood titles, from three to four annually to one or two, over a three year period. One reason cited for the cutback was the high cost of P&A, averaging $8 million for a major title.

Meanwhile, Herald currently operates five multiplexes nationwide with a total of 46 screens and plans to open five new sites within three years to increase total screens to 100.

Kadokawa-Daiei is the film distribution and production arm of Kadokawa Shoten Publishing, a media group whose main business is book and magazine publishing. The company is in the process of reorganising its film business, in preparation for its relaunch on April 1 under the name Kadokawa Pictures.