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Suntory purchases Orangina Schweppes in $3.8 Billion deal

By Junko Hayashi and Naoko Fujimura

Nov. 13 (Bloomberg) — Suntory Holdings Ltd. said it purchased European drinkmaker Orangina Schweppes from Blackstone Group LP and Lion Capital LLP as Japan’s third-largest brewer expands outside a shrinking domestic market.

An agreement was reached yesterday, Suntory said in a statement released at a press conference in Tokyo today, without providing a value for the transaction. The Japanese beverage maker bid about 2.6 billion euros ($3.86 billion), two people familiar with the discussions said in September.

Suntory gains Orangina, Oasis, Schweppes and other drink brands that command sales of about 1 billion euros in Europe. Closely held Suntory, which is in talks to merge with Japan’s biggest brewer Kirin Holdings Co., is expanding abroad as the country’s beer sales fall.

“Japanese drinkmakers and other companies have to seek alternatives overseas as domestic demand declines,” Mitsushige Akino, who oversees about $645 million as chief investment officer at Tokyo-based Ichiyoshi Investment Management Co., said before the announcement. “Still, the growth in demand is in Asia, not Europe or the U.S.”

Shipments of beer and other beer-like drinks by Japanese brewers fell 2.6 percent in the first 10 months of this year. Kirin was Japan’s biggest brewer by volume in the period, followed by Asahi Breweries Ltd. Suntory was third.

Japanese beverage makers announced or completed $8.1 billion of overseas acquisitions since the beginning of last year, compared with $4.5 billion for the eight years through 2007, according to data compiled by Bloomberg.

Rothschild, JPMorgan Chase & Co., Citigroup Inc., Blackstone Corporate Advisory, Royal Bank of Scotland Group Plc and Nomura Holdings Inc. advised Blackstone and Lion Capital. Suntory was advised by Bank of America-Merrill Lynch.

European Base

“We plan to build a base for our business in Europe to speed up Suntory’s globalization,” Seiichiro Hattori, head of the beverage maker’s strategy development, told reporters in Tokyo today.

The global soft drinks market grew 11 percent to $416.3 billion last year, according to Euromonitor International. Coca- Cola Co. had the biggest market share followed by PepsiCo Inc., with Suntory ranked sixth, Kirin eighth and Orangina 15th.

Orangina, an orange-flavored carbonated soft drink containing fruit pulp, was created in 1936 by a Spanish chemist and later bought by French liquor maker Pernod Ricard SA.

Cadbury bought Orangina in 2001, and the drinkmaker was acquired by Blackstone and Lion Capital for 1.85 billion euros in 2006.

Sports, Mineral Drinks

The business, renamed Orangina Schweppes in February, has more than 2,500 employees and sells sports drinks, mineral water and juice. Its products are sold mainly in Europe with some sales in Africa, Asia and the Middle East.

Suntory’s Europe sales fell 29 percent to 9.2 billion yen ($102 million) in 2008, accounting for 0.6 percent of the company’s total revenue of 1.5 trillion yen.

Orangina sold $2.2 billion worth of soft drinks in 2008, of which more than 70 percent were sold in Western Europe, according to EuroMonitor.

“Buying Orangina could help Suntory to fill the gap in Europe, where it has no market share in soft drinks,” said Hope Lee, a beverage analyst at Euromonitor International. “Domestically, the saturation of beverage consumption and the deep recession have forced major Japanese players to look for new sources of growth.”

Yamazaki Single Malt

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

First-half net income for Suntory fell 28 percent to 8.16 billion yen as raw material costs rose and a stronger yen eroded overseas earnings.

Suntory started in 1899 and is controlled by President Nobutada Saji and the founding family. It had 21,845 employees last year.

Kirin and Suntory said in July they’re in merger talks to create a food and drinks giant with $42 billion in annual sales.

Japanese beverage companies have been buying assets overseas to boost growth. Suntory acquired Groupe Danone SA’s Australia and New Zealand drinks business Frucor last year for more than 600 million euros, beating Asahi, which had expressed an interest in the unit.

In Australia, Kirin has bought brewer Lion Nathan Ltd., Dairy Farmers and National Foods in the past two years. It purchased almost half of San Miguel Brewery Inc. in the Philippines this year.

Asahi agreed to buy a 19.9 percent stake in Chinese brewer Tsingtao Brewery Co. for $667 million in January.

Suntory Holdings Ltd. said it purchased European drinkmaker Orangina Schweppes from Blackstone Group LP and Lion Capital LLP as Japan’s third-largest brewer expands outside a shrinking domestic market.

An agreement was reached yesterday, Suntory said in a statement released at a press conference in Tokyo today, without providing a value for the transaction. The Japanese beverage maker bid about 2.6 billion euros ($3.86 billion), two people familiar with the discussions said in September.

Suntory gains Orangina, Oasis, Schweppes and other drink brands that command sales of about 1 billion euros in Europe. Closely held Suntory, which is in talks to merge with Japan’s biggest brewer Kirin Holdings Co., is expanding abroad as the country’s beer sales fall.

“Japanese drinkmakers and other companies have to seek alternatives overseas as domestic demand declines,” Mitsushige Akino, who oversees about $645 million as chief investment officer at Tokyo-based Ichiyoshi Investment Management Co., said before the announcement. “Still, the growth in demand is in Asia, not Europe or the U.S.”

Shipments of beer and other beer-like drinks by Japanese brewers fell 2.6 percent in the first 10 months of this year. Kirin was Japan’s biggest brewer by volume in the period, followed by Asahi Breweries Ltd. Suntory was third.

Japanese beverage makers announced or completed $8.1 billion of overseas acquisitions since the beginning of last year, compared with $4.5 billion for the eight years through 2007, according to data compiled by Bloomberg.

Rothschild, JPMorgan Chase & Co., Citigroup Inc., Blackstone Corporate Advisory, Royal Bank of Scotland Group Plc and Nomura Holdings Inc. advised Blackstone and Lion Capital. Suntory was advised by Bank of America-Merrill Lynch.

European Base

“We plan to build a base for our business in Europe to speed up Suntory’s globalization,” Seiichiro Hattori, head of the beverage maker’s strategy development, told reporters in Tokyo today.

The global soft drinks market grew 11 percent to $416.3 billion last year, according to Euromonitor International. Coca- Cola Co. had the biggest market share followed by PepsiCo Inc., with Suntory ranked sixth, Kirin eighth and Orangina 15th.

Orangina, an orange-flavored carbonated soft drink containing fruit pulp, was created in 1936 by a Spanish chemist and later bought by French liquor maker Pernod Ricard SA.

Cadbury bought Orangina in 2001, and the drinkmaker was acquired by Blackstone and Lion Capital for 1.85 billion euros in 2006.

Sports, Mineral Drinks

The business, renamed Orangina Schweppes in February, has more than 2,500 employees and sells sports drinks, mineral water and juice. Its products are sold mainly in Europe with some sales in Africa, Asia and the Middle East.

Suntory’s Europe sales fell 29 percent to 9.2 billion yen ($102 million) in 2008, accounting for 0.6 percent of the company’s total revenue of 1.5 trillion yen.

Orangina sold $2.2 billion worth of soft drinks in 2008, of which more than 70 percent were sold in Western Europe, according to EuroMonitor.

“Buying Orangina could help Suntory to fill the gap in Europe, where it has no market share in soft drinks,” said Hope Lee, a beverage analyst at Euromonitor International. “Domestically, the saturation of beverage consumption and the deep recession have forced major Japanese players to look for new sources of growth.”

Yamazaki Single Malt

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

First-half net income for Suntory fell 28 percent to 8.16 billion yen as raw material costs rose and a stronger yen eroded overseas earnings.

Suntory started in 1899 and is controlled by President Nobutada Saji and the founding family. It had 21,845 employees last year.

Kirin and Suntory said in July they’re in merger talks to create a food and drinks giant with $42 billion in annual sales.

Japanese beverage companies have been buying assets overseas to boost growth. Suntory acquired Groupe Danone SA’s Australia and New Zealand drinks business Frucor last year for more than 600 million euros, beating Asahi, which had expressed an interest in the unit.

In Australia, Kirin has bought brewer Lion Nathan Ltd., Dairy Farmers and National Foods in the past two years. It purchased almost half of San Miguel Brewery Inc. in the Philippines this year.

Asahi agreed to buy a 19.9 percent stake in Chinese brewer Tsingtao Brewery Co. for $667 million in January.

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