E-Malt.com News article: Japan: Asahi Group considering purchase of beverage maker Calpis Co.

Asahi Group Holdings Ltd., Japan’s largest beer maker, is considering acquiring Japanese beverage maker Calpis Co. from Ajinomoto Co. in the latest realignment move in the domestic beverage sector, Dow Jones reported on April, 27.

Asahi said in a statement that "we are considering such a case although nothing specifically has been decided." Separately, Ajinomoto said "we and Asahi are studying a transaction of Calpis shares," adding that it will disclose details as and when necessary.

The move comes as major Japanese drinks companies are on the prowl for mergers and acquisitions both at home and overseas as they contend with saturated domestic demand due to a shrinking customer base and a weak economy.

While embarking on a major offensive to extend their global reach, companies in the Japanese food and beverage sectors are also moving to strengthen their positions in their home market.

In 2011, Sapporo Holdings Ltd. merged with unlisted domestic soft drink company Pokka Corp. in a deal valued at Y21.3 billion.

Last year, Asahi made a slew of outbound M&A moves, including a deal to buy New Zealand's Independent Liquor for $1.3 billion.

But Asahi is also strengthening its M&A hunt in Japan, focusing on domestic food and beverage companies. In 2010, Asahi bought House Foods Corp.'s mineral water business for Y5.3 billion.

Earlier on April, 27, the Nikkei said Asahi had begun final negotiations to buy Calpis for up to Y100 billion, in what will likely be the biggest deal yet in Japan's soft-drinks market.

Asahi currently ranks fourth in the domestic soft-drinks market with a 9.9% share. The purchase of Calpis would bring it into third spot with 12.4%, the report said.

Asahi and Calpis have already launched a joint venture to team up in the area of soft drink vending machine operations.

In 2007, Ajinomoto made Calpis a wholly owned subsidiary through a share swap to expand its beverage business in Japan and overseas, in a deal that valued Calpis at Y109.97 billion, compared with the market capitalization of Y87.10 billion when the deal was announced. Ajinomoto first bought a 20% stake in Calpis in 1990 for Y20 billion.

"The prospective deal does make some sense but looks pricey, and the firm may be better off spending the cash overseas," said Nigel Muston, an analyst at CLSA, noting that on paper the acquisition would add just 4% to the firm's operating profit. "The domestic beverage industry remains very fragmented, and while we have seen some signs of consolidation of late, there is a ton of room for more, and without it, there is no reasonable chance that the industry as a whole will ever see better margins."

27 April, 2012