Glenboden M & A Originations

Japanese beer giants’ acquisition race heats up in spite of global slowdown

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Origination Status buyer announcement of intent to acquire minority (49%) stake, February 2009
Asset San Miguel Brewery (Philippines), leading domestic brewer with 90% share
Buyer Kirin Holdings (Japan), no.2 domestic brewer
Seller San Miguel Corp. (Philippines), domestic conglomerate
Buyer Rationale overseas expansion strategy, accelerated growth, cash absorption
Seller Rationale strategic partner, corporate restructuring, focus on utilities’ investment
NBs Kirin has co-operated closely with San Miguel in south-east Asia
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It’s ironic that, at a time when the heads of major western food groups, like Heinz and Campbell, are telling conferences there’ll be no more big-ticket M&A deals for a while, the big three Japanese beer groups, propped by the strong yen, are having a massive acquisition binge in Asia and Oceania. We summarise the big deals; those that have already been done plus those in the pipeline.

The three groups in question, Asahi, Kirin and Suntory, are quite similar to one another and share a common heritage. Each of them has total sales of about $ 12 bln; each of them has a top three brewing business in Japan; each of them has diversified into other alcohol drinks, soft beverages and food products, to achieve growth as the Japanese beer market has matured. That search for growth is increasingly leading them, with their strong domestic cashflows, into overseas acquisitions.

Asahi is the clear market leader in beer in Japan, with about 40% share, and alcohol beverages make up about 70% of the group’s total sales, with the remainder being mostly soft beverages. The group started to implement serious acquisitions overseas in 2008, with its President declaring a targeted four-fold increase in overseas sales, principally through acquisitions and strategic alliances in Asia.

Asahi’s first two deals were the purchase of a 20% stake in Tsingtao, a major brewer in northern China, from InBev; plus the acquisition of Schweppes Australia from Cadbury, the no.2 soft drinks producer in that market.

Now let’s turn to Kirin Holdings, the no.2 in beer in Japan with 25% share. It’s hitherto been more aggressive in its growth and overseas acquisition targets than Asahi, with the goal of becoming a diversified, international beverages and food group, and doubling its sales revenue, by 2015. In 2007 it acquired Australia’s National Foods and Japan’s Kyowa Hakko. The following year it picked up Australia’s Dairy Farmers. Now it’s taking a strategic shareholding in San Miguel.

Finally we have privately –held Suntory, whose aggressive growth targets also include overseas expansion. Its portfolio is more diversified however, spanning spirits and wine, RTD coffee, foodservice and flowers. It also has a very strong corporate social responsibility mandate. In 2008 it joined the M&A big league in Asia, by acquiring Frucor, Australasia’s leading juice and energy drinks producer, from Groupe Danone. In the process it’s said to have outbid both Asahi and Kirin.

As for future acquisitions, these need to be big and many, if all three groups are to reach their overseas incremental sales targets, which combined come to over US$ 10 bln.

Major tips include South Korea’s no.2 beer producer, Oriental Brewery, which is in the process of being sold by Anheuser-Busch InBev. OB has revenues of about US$ 1 bln; Asahi is said to be cosying up to the domestic retail giant, Lotte Group, to make a joint bid. Kirin is also in the frame.

Vietnam is another likely target. It’s one of the most attractive beer markets in the world now, but is still dominated by a state-owned duopoly, Sabeco and its northern counterpart Habeco. In 2008, Carlsberg took a 16% stake in Habesco, with whom it has a major JV to build a new brewery; the Vietnamese government is likely to allow a parallel deal involving Sabeco in 2009. Competition amongst the three Japanese brewers is likely to be intense there.

Another target, already mentioned by Asahi’s president, is Taiwan Beer, the dominant state –owned brewer in that country. Not only does Taiwan itself have a population of some 25 mln, but TB might provide a strong platform into the Chinese market for Japanese brewers, if relations between Taiwan and China continue to normalize.

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THIS LEAD'S VALUATION
Size (€ mln) 1.100
Sector brewing
Asset Quality Philipppines no.1 branded
Seller large plc
Buyer large plc
P/S 2,3
P/Ebitda 8,0
Type value estimate
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