Saturday, 6 March 2010

Kirin wants to control San Miguel Brewery

by Naoko Fujimura and Shunichi Ozasa

KIRIN Holdings Co. may seek control of San Miguel Brewery after dropping a planned merger with Suntory Holdings that would have created the world’s fifth-biggest food and drinks maker.

“We’d like to take a majority” of San Miguel from the current 48 percent if its parent would be willing to sell, Senji Miyake, who will become Kirin’s president this month, said in Tokyo. “We’re not in hurry,” he said, declining to say whether they’ were in talks.

Japanese beverage makers are accelerating overseas expansion to tap wider margins and offset falling domestic beer sales. The brewer of Kirin Lager and Ichiban Shibori has spent about $7 billion on overseas purchases in the past three years, including taking Lion Nathan private. Kirin on Feb. 8 ended talks to buy Suntory, balking at the $10-billion asking price.

“Kirin may now get going again and begin growing again, and most of the growth will come from outside Japan,” said Edwin Merner, president of Atlantis Investment in Tokyo, which manages about $3 billion in assets. Japan’s largest beverage company would focus expansion in Asian countries with growing populations and rising per-capita incomes, he said.

The beverage maker last year bought its stake in San Miguel Brewery, which controls 95 percent of the Philippines’ beer market. The venture bought the international beer operations from San Miguel Corp. for $300 million in January to gain access to China and other parts of Southeast Asia.

“There is no way we can’t make use of San Miguel’s strong brand in Southeast Asia,” said Miyake, 62. “Our priority is Southeast Asia, as its potential is as big as China.”

Cheaper beer was boosting demand in China, making it hard for Kirin to improve profitability in the world’s fastest-growing major economy, Miyake said.

Miyake joined Kirin in 1970 after graduating from Keio University with an economics degree. He became executive vice president last year after holding various positions including executive vice president of the company’s local venture with Heineken NV and president of Kirin’s beer unit.

San Miguel Brewery, with brands including Lowenbrau and Stella Artois, gained two breweries in China and one each in Indonesia, Hong Kong, Thailand and Vietnam with the January acquisition.

Boosting the stake in San Miguel Brewery would help improve Kirin’s profitability, as the venture has a wider operating profit margin than its rival companies in Southeast Asia as well as Kirin.

San Miguel Brewery’s margin was 32 percent in 2008, compared with Kirin’s 5.6 percent in 2009. Singapore’s Fraser and Neave‘s was 15.1 percent in the year ended September 2009 and Thai Beverage had 14.2 percent in 2009.

San Miguel Corp. is selling food and beverage assets to expand into faster-growing industries such as energy, telecommunication and mining. It has an option to buy a majority stake in oil refiner Petron Corp. It has also bought one power plant and one power supply contract from the government and owns 27 percent of Manila Electric Co.

“It’s natural for Kirin to increase its stake in San Miguel Brewery if San Miguel Corp. sees a need for cash,” said Naomi Takagi, an analyst at JPMorgan Chase & Co., who has an “overweight” rating on Kirin.

“Kirin needs more foundation such as a distribution network and brands to cultivate the market in Southeast Asia, because San Miguel, National Foods and Kirin Beverage aren’t enough.”

Kirin acquired National Foods, Australia’s biggest producer of milk and juice, for A$2.8 billion (US$2.5 billion) in 2007.

Kirin planned to keep a distribution venture with Suntory that the two companies formed last year to lower costs, Miyake said.

Suntory bought European drinkmaker Orangina Schweppes last year and Groupe Danone SA’s Australia and New Zealand drinks business Frucor in 2008.

Asahi Breweries, Japan’s second- largest brewer, bought a 19.9-percent stake in China’s Tsingtao Brewery Co. and acquired Cadbury Plc’s Australian drinks unit last year.

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