Hampered by limited prospects at home and getting a good
tailwind from the yen's rise, Kirin Holdings Co. (2503.TO) said
Tuesday it will spend about $2.56 billion to buy a majority stake
in Schincariol, Brazil's second biggest brewer, in bid to quench
its thirst in a market rich with growth potential.
The Tokyo-based company, which owns all of Australia's Lion
Nathan Ltd. and 48% of San Miguel Brewery Inc. of the Philippines,
said it has agreed to buy all outstanding shares of Aleadri-Schinni
Participacoes e Representacoes S.A., which holds a 50.45% stake in
family-run Schincariol for Y198.8 billion. The transaction,
scheduled to be completed later Tuesday, will be funded through
cash on hand and loans.
"The deal will enable us to build an ideal platform" to proceed
with establishing our beverage and beer business in the rapidly
expanding Brazilian market, Kirin President Senji Miyake said.
With the domestic situation curtailed by the nation's shrinking
population and a gradual shift away from beer drinking, Japan's
brewers are ramping up their overseas operations. Industry-wide
beer shipments ebbed 3.5% to 200.32 million cases in the first half
ended June.
Analysts say M&As are an attractive way to grow outside
Japan especially for the nation's cash rich food and beverage
sector. But Japanese companies still need to find local partners in
overseas markets that can effectively cater to local tastes.
The deal is the third biggest this year among global beverage
sector after SABMiller PLC's (SBMRY) $10 billion pursuit of
Foster's Group and Mexican Coca-Cola bottlers Embotelladoras Arca
SAB's (ARCA.MX) $2.8 billion purchase of Grupo Continental SAB
(CONTAL.MX), according to Dealogic data.
Brazil, where beer demand is expected to increase in keeping
with the nation's economic growth, is the third biggest beer market
after China and the U.S. and nearly double the size of Japan, which
places sixth.
Amid cutthroat competition striving to get a bigger slice of the
global market share, "this is a rare opportunity to buy an
influential company," said Miyake. With 13 breweries in Brazil,
Schincariol produces the Nova Schin beer brand and Schin soft drink
brand.
The deal comes at the time when the yen's rise is also creating
an opportunity for Japanese firms to get more bang for their buck
when they make acquisitions abroad.
However, Miyake said that the yen's strength was not a
particular reason behind the decision to buy Schincariol. He said
it just happened in at this time, playing down the beneficial
impact from the yen's strength and noting the Brazilian currency's
strength against the dollar.
There is one other reason for Kirin being on the M&A hunt.
The sector missed out on much-needed domestic consolidation and
more efficient business structures when Kirin and privately-held
Suntory Holdings Ltd. last year scrapped plans to merge.
In July last year, Kirin bounced back from the collapse of the
Suntory deal by buying close to 15% of Singapore's Fraser &
Neave Ltd. (F99.SG), in a deal valued at $970 million at the time
of purchase.
For Kirin, the latest deal is smaller than other recent
M&As, including a combined Y329.3 billion deal in two stages in
1998 and 2009 to buy Lion Nathan and a Y294.0-billion deal in 2007
to buy Australia's National Foods Ltd.
Schincariol approached leading global players earlier this year
about a possible bid, providing them with a complete "investment
kit" for review, according to analysts and industry sources. A
person familiar with the matter said Kirin beat out competing
offers from SABMiller (SBMRY) and Heineken (HINKY).
Brazil's beer consumption jumped 11% in 2010 from the year
before, according to the National Brewing Association, an industry
trade group.
Brazil's market, however, has long been dominated by AmBev,
which merged with Belgian brewer Interbrew in 2005 and then
swallowed Anheuser-Busch in 2008 to become the world's biggest
brewer.
Schincariol started out in 1939 as a soft-drink vender. Its
tutti-frutti-flavored soft drink Itubaina is still popular in the
interior of Sao Paulo state, where Schincariol's headquarters is
located.
Several analysts were surprised by the large acquisition price,
but added that having an overall objective of entering the
fast-growing South American market is positive amid an increasing
lack of targets in other parts of Asia and Australia following the
recent M&A spree by Japanese and other beverage makers in the
regions.
"The company certainly targets a high level of growth over the
next several years so if the company were able to achieve that
level of growth, then I can understand why they paid as much as
they did," said Toby Williams, an analyst at Macquarie in Tokyo,
citing Kirin's strong balance sheet.
But with labor costs also expected to increase, tapping into
market expansion alone is unlikely to lead to growth in the
company's bottom-line.
"It will have to grow its volumes and hopefully its share in a
market, which already has a dominant player," Williams said.
The deal is also the third biggest acquisition of foreign
companies by Japanese companies announced this year after Takeda
Pharmaceutical's $14 billion purchase of Nycomed and Terumo's
acquisition of CaridianBCT worth $2.6 billion, according to
Dealogic.
-By Hiroyuki Kachi and Kana Inagaki, Dow Jones Newswires;
813-6269-2795; kana.inagaki@dowjones.com
-Tom Murphy, Alison Tudor contributed to this report.
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