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Japan: Kirin & Suntory in merger talks

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July 14 (Bloomberg) — Kirin Holdings Co., Japan’s biggest beermaker by sales, said it may merge with Suntory Holdings Ltd., creating one of the world’s biggest drinks companies that may challenge market leader Anheuser-Busch InBev NV.

Kirin, Japan’s largest drinks producer, and closely held Suntory are in the “early stage” of discussions, the companies said in a statement today. Kirin rose 0.7 percent in Tokyo trading, extending yesterday’s 7.8 percent gain after Nikkei newspaper first reported that merger talks were taking place.

Combining with Suntory would help Kirin accelerate growth overseas and cement its position as Asia’s biggest beermaker as Budweiser brewer Anheuser-Busch InBev backs away from the region. Tokyo-based Kirin has spent more than $7 billion in the past two years in Asia, including taking full control of Australian brewer Lion Nathan Ltd., as its home market for products such as Ichiban Shibori beer and Kirin Lager shrinks.

“They have to be bigger to boost their presence overseas just like European or U.S. companies,” said Mitsuo Shimizu, an analyst at Tokyo-based Cosmo Securities Co. “The two companies would be a good couple, as they can supplement each other.”

Suntory, based in Osaka, western Japan, isn’t publicly traded and is controlled by President Nobutada Saji and the founding family. Sapporo Holdings Ltd., which like Suntory has about 12 percent of Japan’s beer market, has a market value of 215 billion yen ($2.3 billion).

Whisky, Beer, Ice Cream

“This would be a huge, global beverage company to rival the likes of AB InBev,” Andy Smith, head of equities at ICAP Plc in London, said in an interview yesterday, before Kirin’s announcement. “You’d probably see a combined company investing more outside of Japan.”

The combined company would have annual beer sales by volume of about 56 million hectoliters, including the contribution of Lion Nathan, according to data compiled by Bloomberg. That would make it the world’s sixth-largest brewer, behind Molson Coors Brewing Co. and ahead of China’s Tsingtao Brewery Co. Ltd.

Suntory makes Malt’s and Super Magnum Dry beers as well as Suntory Yamazaki Single Malt Whisky, and distributes for Carlsberg A/S. It also makes food and is the Japanese joint venture partner of Haagen Dazs ice cream.

Kirin also makes tea drinks in addition to beer. The company distributes brews in Japan made by Heineken NV and AB InBev and sells Tropicana Juice as well as Volvic mineral water.

Shares Gain

Sales of beer, juice and other products for Kirin and Suntory last year were a combined $40.9 billion, higher than Coca-Cola Co.’s $31.9 billion. Atlanta-based Coca-Cola’s revenue doesn’t include all the sales at licensed bottlers and affiliates around the world.

Kirin rose 9 yen to 1,401 yen in Tokyo, boosting the shares’ two-day gain to 8.5 percent. The stock has gained 19 percent this year, beating the 4.5 percent advance for the benchmark Nikkei 225 Stock Average.

Kirin and Suntory would still lag behind AB InBev, which had sales of 16.1 billion euros ($22.5 billion) last year.

“It may be good for Japan to have a big food company like Nestle SA and PepsiCo Inc.,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which manages $28 billion. “It would give a good chance for them to compete with larger rivals especially in Russia and other emerging countries.”

Kirin this year agreed to pay A$3.5 billion ($2.7 billion) for the rest of Lion Nathan, taking over Australia’s second- largest brewer. It also bought almost half of San Miguel Brewery Inc. this year, partly funded by the sale of its holding in the Philippine brewer’s parent, San Miguel Corp.

Global Impact

Japanese companies “can’t fight globally unless they become big,” said Taiji Okusu, managing director of investment banking at Credit Suisse Securities (Japan) Ltd. “This deal would have an impact globally.”

AB InBev is selling assets to fund debt taken on last year to pay for InBev NV’s $52 billion takeover of Anheuser-Busch Cos. It agreed to sell the majority of its stake in Chinese brewer Tsingtao Brewery Co. in January and in May said KKR & Co. will pay $1.8 billion for its South Korean unit Oriental Brewery Co.

AB InBev had 119,874 employees at the end of last year, more than triple Kirin’s 36,554, according to Bloomberg data. The Leuven, Belgium-based brewer had a profit margin of 8 percent last year, compared with 3.5 percent for the Japanese company.

Beer Sales Forecast

Kirin led Japan’s beer shipments in the first half, edging out Asahi Breweries Ltd. for the first time in three years. Kirin had a 37.5 percent share of the beer market, followed by Asahi Breweries Ltd. with 36.9 percent, Suntory with 12.7 percent, and Sapporo with 12.1 percent.

Kirin has forecast total beer sales in Japan this year will fall 1.7 percent to 749 billion yen after declining 3 percent in 2008. Beer sales in Japan are declining as the population ages and younger drinkers switch to wine and other beverages.

Kirin’s history dates back to a brewery set up in Yokohama, south of Tokyo, by Norwegian-born American William Copeland in 1870. It failed and was taken over by Japanese business people and later renamed Kirin for the mythical animal that adorns its labels, a sign of good luck. Suntory, founded by President Saji’s grandfather in 1899, established Japan’s first whiskey factory in Yamazaki in western Japan in 1924.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

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