Andy Morton

In the Spotlight - Suntory's US$4.7bn Share Offer

By | 30 May 2013

Suntory will join the Tokyo Stock Exchange on 3 July

Suntory will join the Tokyo Stock Exchange on 3 July

It is shaping up to be one of the drinks industry's biggest events of the year. This week, Suntory got approval to list its food and soft drinks unit on the Tokyo Stock Exchange, paving the way for the group to raise as much as US$4.7bn.

It is the first public offering from a company that has prided itself on an independent heritage dating back to 1899. But while Suntory's crown jewel will go up for public tender - the unit makes up more than half of its global sales - the Japanese firm remains resolute in other respects.

For example, parent company Suntory Holdings, which is 90% owned by the Suntory family, according to the Wall Street Journal, will hang on to at least 59.5% of the unit.

What's more, Suntory's alcohol unit, which brews Suntory beer and owns the Yamazaki brand is staying firmly in-house. 

The WSJ said the move is in line with Suntory's strategy to seek long-term growth rather than short-term investor earnings.

“Its whiskey business is a case in point, because of high-end, premium whiskey’s long aging time of 12 years, 18 years and more at storage warehouses. It also famously spent 46 years before it generated a profit from its beer business and 14 years developing what most scientists considered impossible: Creating a blue rose using genetic-modification techniques,” the paper said. 

There's also the problem of Japan's ageing population and a corresponding drop in alcohol consumption as the younger generation diversifies, the Journal said.

Non-alcoholic beverages face problems too. "Domestic beverage demand is saturated,” an analyst told Reuters. “Whether Suntory will be attractive in the beverage industry compared with Asahi and Kirin will depend on its overseas strategy.”

That strategy has led to a number of international acquisitions over the past few years, including Orangina Schweppes for EUR2.6bn in 2009 and New Zealand beverage maker Funcor Group later the same year. The IPO will raise funds to cover these buys, as well as the more recent 51% JV with PepsiCo in Vietnam. 

But more importantly it will free up funds for future acquisitions. The Financial Times said most of the money raised in the IPO will go on overseas deals, with an emphasis on south-east Asia. Indonesia has become a mini-battleground among Japan's beverage firms, with Suntory linking up with Garudafood Group and Asahi launching two JVs with PT Indofood CBP Sukses Makmur, so more action could take place there. An increase in overseas acquisitions should help Suntory's ratio of international sales - 21% - catch up with Kirin's 30%, the FT said.

Whether the IPO will reignite merger talks between Suntory and Kirin is not so clear. The pair failed to come to an agreement in 2010, but with a groaning war chest on the way, Suntory looks well placed.

Expert analysis

Suntory Holdings Ltd in Soft Drinks (World)

The changed organisational structure within Suntory and the highlight of Latin America, Middle East and Africa reflect Suntory’s globalisation ambition. The company is encouraged to expand into major RTD tea and RTD coffee markets such as the US and Southeast Asia by leveraging its category competencies. Its weak spot in the Americas and Middle East and Africa should be addressed more immediately.

Sectors: Beer & cider, Mergers & acquisitions, Soft drinks, Spirits

Companies: Suntory, Asahi, PepsiCo, Kirin

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