February 8, 2010 / 8:29 AM / 9 years ago

UPDATE 3-Japan brewers Kirin, Suntory end merger talks

* Talks break down over control of merged firm

* Failure may delay price stability in Japan’s drinks market

* Kirin shares slide 7 percent vs 1.1 pct fall in Nikkei (Adds executive, analysts’ comments, background, details)

By Taiga Uranaka

TOKYO, Feb 8 (Reuters) - Japanese brewers Kirin Holdings (2503.T) and unlisted Suntory [SUNTH.UL] on Monday dropped plans to create a food and drinks group with $43 billion in annual sales, disagreeing over how to control a merged firm.

The collapse of the merger talks that began seven months ago pushed Kirin shares down 7 percent and is likely to hurt Japan’s highly competitive beverage firms’ chances of expanding overseas.

“The two sides could not agree on how the merged firm would be run,” Kirin President Kazuyasu Kato told reporters.

Separately, Suntory said there were “differences in opinions” between the two companies “including the merger ratio.”

Kirin hinted its failure to secure a deal with Suntory did not mean it would not look elsewhere. “We are not going to do business just based on organic growth,” Kato said.

Prior to its talks with Suntory, the maker of Kirin lager had agreed to buy Australian brewer Lion Nathan LNN.NZ. It also raised its stake in its China soft drinks venture.

Suntory outmanoeuvered both Kirin and rival Asahi Breweries (2502.T) with a more than 600 million euro deal for Danone’s (DANO.PA) Frucor juice unit in 2008, and late last year completed the $3.9 billion purchase of soft drinks maker Orangina Schweppes from Blackstone Group (BX.N) and Lion Capital LCHL.OB. [ID:nT114353]

Japanese food and beverage makers have been forced to look overseas for growth, as the home market matures and Japan’s population declines. Japan’s beer market has shrunk by 15 percent in terms of shipment volume over the past decade.


A Kirin/Suntory deal would have created the largest player in the Japanese beer and soft drinks markets and a company on par in revenue terms with Pepsico Inc PEP.N, armed with greater pricing power in Japan’s mature market.

Kirin had also hoped to grab Suntory’s health and soft drinks businesses in southeast Asia and China and gain a firmer footing on which to seek further acquisitions abroad.

Still, the Kirin/Suntory talks were never seen as a done deal, with much of the uncertainty focused on how Kirin would value privately-held Suntory and how large a stake Suntory’s founding family would take in the merged company.

The family, which includes company president Nobutada Saji, holds about 90 percent of the unlisted brewer.

Some analysts said the breakdown in talks may be better for Kirin than delays that could have arisen from thrashing out differences in growth strategy with Suntory, which has a different corporate culture due to the dominance of its founding family.

“The risks that come with a merger ... have been weighing on Kirin’s share price,” said Tomonobu Tsunoyama, analyst at Tokai Tokyo Research Center. “But this is likely to slow consolidation in a hyper-competitive sector that is still grappling with price falls.”

Hiroshi Saji, a senior analyst at Mizuho Securities Co, said Kirin’s share price fall on Monday was “psychological” rather than based on valuations as the merger benefits were never priced in.

“But now hope of stability in the Japanese soft drinks sector has faded,” he added.

Kirin shares slid 7.4 percent, compared with a 1.1 percent decline in the benchmark Nikkei average .N225.

Kirin also makes “Ichibanshibori” beer and “Afternoon Tea” bottled drinks, while Suntory is known for its “Premium Malt’s” beer and “Boss” canned coffee.

Kirin’s financial advisers were Morgan Stanley (MS.N) and Mitsubishi UFJ Securities, while Suntory was advised by Goldman Sachs (GS.N) and Nomura (8604.T). (Additional reporting by Mayumi Negishi; Editing by Valerie Lee)

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