UPDATE: Kirin Holdings, Suntory In Merger Talks - Source
July 12 2009 - 9:06PM
Dow Jones News
Japan's Kirin Holdings Co. (2503.TO) and Suntory Holdings Ltd.
are in merger talks, a person close to the matter said Monday, in a
development that could lead to the creation of a huge beverage
company that would rival Coca-Cola Co. in terms of sales but not
profits.
Kirin and privately held Suntory have posted relatively strong
earnings in recent years in spite of the sluggishness of the
domestic beer and beverage market, which has been hurt by a
shrinking population and a weak economy. But the two companies have
been pushing hard to increase their overseas presence in the face
of a gloomy Japanese outlook, making various foreign acquisitions
recently, and analysts say a merger could give them more funds in
their future international M&A efforts.
If the merger goes through, it would create a new food and
beverage giant with combined sales in 2008 of Y3.8 trillion, or
about $40.9 billion. That would exceed Coca-Cola's 2008 revenue of
$31.94 billion.
But its combined net profit would be Y112.4 billion, or about
$1.21 billion, far below the profits of foreign rivals such as
Coca-Cola's $5.8 billion, suggesting that improving profitability
would be a key task for a merged company.
The person familiar with the matter said a merger would face a
number of hurdles, but didn't elaborate. Such a huge consolidation
would likely require clearance from antitrust authorities: the
merged entity would grab about 50% of Japan's beer market, leaving
Kirin's archrival Asahi Breweries Ltd. (2502.TO) with a 37% market
share.
In trading on the Tokyo Stock Exchange, Kirin's share price
jumped on the possibility of the merger, and was up 8.5% at Y1,401
at 0128 GMT.
Though their home market is deteriorating, Japan's beer makers
have resisted the consolidation trend until now. Because buying a
company within the same industry often requires layoffs and
closures, Japanese companies have historically been resistant to
mergers. Instead, the nation's big beer makers tend to seek ways to
diversify into far-flung areas, from baby food to flowers to
increase revenue.
Both companies have been busy increasing their international
businesses.
Kirin, which holds a 46% stake in Australia's Lion Nathan Ltd.
(LNN.AU) and 48% of the Philippines San Miguel Brewery Inc.
(SMB.PH), is stepping up efforts to increase its presence in Asia
and the South Pacific. It aims to generate about 30% of its revenue
outside of Japan by 2015.
Suntory, which currently bottles and distributes PepsiCo Inc.
(PEP) products in Japan, has already established a presence in
China, obtaining the biggest beer market share in Shanghai and
neighboring areas. Earlier this year, the company paid more than
EUR600 million (A$1.18 billion) for Groupe Danone SA's Australian
and New Zealand drinks business Frucor.
The two companies have also joined hands in the area of
procurement, allowing Kirin to join Suntory's system to procure
cardboard for use in soft drinks and other products.
Both have been active in business outside Japan and diversifying
into food- and health-related fields to expand its sources of
revenue.
-By Hiroyuki Kachi, Dow Jones Newswires; 813-6895-7562;
hiroyuki.kachi@dowjones.com