Comment - Japanese fuel interest in Orangina sale

By breakingviews.com | 10 September 2009

There is always a bubble inflating somewhere. Right now that somewhere appears to be the soft drinks market. Intense interest among Japanese buyers has created an opportunity for US private-equity firms Blackstone Group and Lion Capital to sell Orangina, the iconic French juice brand, possibly for as much as the US$2.6bn they paid for it in 2006.

Orangina may be a great name, but it is not exactly a great asset. Quirky advertising has helped keep the French keen on the oddly shaped bottles, but consumers elsewhere have generally resisted the charm of the orange-flavoured drink. There are other assets, but in total not much growth. That's why France's Pernod Ricard sold it to the UK's Cadbury Schweppes in 2001, which in turn sold it to its current private-equity owners.

This is an archetypical private-equity asset: lots of cash to be sweated out and few good places to invest it. A quoted company would not be its natural custodian. But slow growth is better than none. Suntory, the lead bidder for the unit, faces a shrinking population in the Japanese brewer's home market. That also helps explain Suntory's talks with rival domestic brewer Kirin about a defensive merger.

The very weak domestic prospects also explain the willingness of Japanese brewers to pay steep prices for low-growth overseas soft-drinks businesses. Asahi paid over $800m, a heady multiple of more than 15 times historic ebitda, for Cadbury's Australian soft drinks earlier this year, while Suntory paid $1.3bn, or almost 13 times trailing ebitda, to acquire Auckland-based Frucorp, a maker of energy drinks, from France's Danone in 2008.

Just as in the 1980s, when Japanese companies spread over the world, shareholders don't seem too bothered about overpaying. It's even conceivable that a suddenly more active market for mergers and acquisitions could lead Western buyers such as PepsiCo to take a look. The conditions could scarcely be better for an exit from Orangina. That will refresh Blackstone and Lion, which already took out a EUR400m dividend and have benefitted from "covenant-lite" financing. The fizzy drinks business can still be sweet.

By Christopher Hughes

Breakingviews.com is the world's leading source of agenda-setting financial insight. Breakingviews.com has 22 correspondents and columnists based in London, New York, Hong Kong, Paris, Washington, San Francisco and Madrid. Its aim is to become the lingua franca for the global financial community.

For more financial analysis from breakingviews.com, click here .

breaking views

Sectors: Soft drinks, Water

Companies: Suntory, Cadbury, Pernod, Ricard, Kirin, Asahi, Danone, PepsiCo

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The battle for Orangina

There is always a bubble inflating somewhere. Right now that somewhere appears to be the soft drinks market. Intense interest among Japanese buyers has created an opportunity for US private-equity firms Blackstone Group and Lion Capital to sell Orangina, the iconic French juice brand, possibly for as much as the US$2.6bn they paid for it in 2006.

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