Kirin, Suntory in merger talks, to be world`s leading beverage firm

TOKYO, July 13 Kyodo -
Japan's top two food makers Kirin Holdings Co. and Suntory Holdings Ltd. have
begun negotiating a merger aimed at surviving a shrinking beverage market,
paving the way to become one of the world's largest beverage companies, sources
close to the matter said Monday.
If realized, the merged entity would become Japan's top firm in both the beer
and soft drink markets.
Combined, the two firms had consolidated sales of around 3.80 trillion yen in
fiscal 2008, which ended in December. Their combined sales are expected to
eclipse the world's top brewer Anheuser-Busch InBev of Belgium and Coca-Cola
Co. of the United States.
Analysts said the deal between two strongly performing firms would drastically
alter the power composition of the international food industry and may trigger
further realignment.
Through the tie-up, Kirin, which had the second-largest share in Japan's beer
and beer-like beverage market in 2008, and the No. 3 brewer Suntory would
expand their combined share to 49.6 percent, topping the 37.8 percent share
held by the current industry leader, Asahi Breweries Ltd.
The merged entity would also grab the top share in the soft drinks market,
outranking the Coca-Cola group.
In addition to addressing declining domestic demand amid a low birthrate and
aging population in Japan, Kirin and Suntory hope to strengthen their financial
standing and remain competitive in the global market through a foray into
high-growth foreign markets, the sources said.
The move would also mark the first major realignment in the domestic beer
industry in more than a century since 1906 when Sapporo Beer Co., Japan Beer
Brewery Ltd. and Osaka Breweries Ltd. were merged to create Dai Nippon
Breweries Co. -- one of the predecessors of present Asahi Breweries.
But analysts remained skeptical whether the merged entity could narrow the gap
with giant foreign players like Nestle S.A. of Switzerland, the world's top
food player with sales of around 9.3 trillion yen. The combined net profit of
Kirin and Suntory -- around 110 billion yen -- also falls far short of Nestle's
net profit totaling around 1.5 trillion yen.
''Mergers and acquisitions are necessary to compete on the global stage in view
of the huge gap in operating profit between foreign firms and Japanese
makers,'' said Tokushi Yamasaki, chief analyst at Daiwa Institute of Research
Ltd. ''Well-performing companies are not an exception.''
Vice Economy, Trade and Industry Minister Harufumi Mochizuki said it is
important for integration of companies to be carried out ''in a manner that
will help to vitalize the Japanese economy,'' adding that domestic
demand-oriented firms like Kirin and Suntory need to raise their shares in
overseas markets.
The two food and beverage makers will aim to reach an early agreement, ironing
out details including on whether to unite under a holding company, the sources
said.
Kirin and Suntory have collaborated in the past through joint delivery and
procurement of materials.
Earlier this year, they each set up a team to study the possibility of
management integration and have been negotiating behind the scenes, according
to the sources.
But the sources also added it will likely take time until a final agreement can
be reached because the operations of the listed Kirin and the unlisted Suntory
are diverse and widespread.
Company employees on both sides also expressed shock about the reported merger
talks, saying the corporate cultures between Tokyo-based Kirin and Osaka-based
Suntory remain far apart.
But markets reacted favorably with Kirin's share rising 101 yen, or almost 8
percent, to 1,392 yen on the Tokyo Stock Exchange.
==Kyodo