Comment - Kirin Holdings Seeks Schincariol Fix
Kirin Holdings needs to resolve Schincariol dispute quickly
There are no easy options for Kirin Holdings as it looks to disentangle itself from a dispute with Schincariol's family shareholders.
Kirin is reportedly willing to pay at least BRL2bn (US$1.06bn) to buy out Schincariol's remaining family shareholders, including the company's debt. On top of this, there is speculation that a tax liability is hanging over Schincariol.
The Japanese brewer has already tested investor patience by agreeing to buy 50.45% of the Brazilian brewer for BRL3.95bn (US$2.5bn), a deal that values Schincariol at 20 times its EBITDA for 2010. The average valuation for brewing industry deals is more like 12 times EBITDA.
In itself, that's a hard statistic to swallow, even allowing for the dwindling number of takeover targets in global brewing. But, what is really eating Kirin is that, having agreed to pay this sum, it appears that the group cannot be assured of seeing the deal through. Other brewers, including Heineken, SABMiller and Diageo kept their distance from Schincariol because, in part, they had no wish to take sides in a family feud.
Kirin has dived in and now faces options that are both limited and potentially expensive. The group said last month that it is confident of winning a legal battle with the remaining Schincariol shareholders, but there is no indication of how long this may take, or what it might cost to do so.
Buying off the disgruntled shareholders is going to be pricey, because everyone knows what Kirin agreed to pay for its initial stake. The only other option looks to be walking away from the deal entirely, although presumably at some cost both to Kirin's bank balance and its management's ego.
As the impasse continues, meanwhile, Anheuser-Busch InBev's AmBev business is working hard to squeeze Schincariol in the brewer's stronghold in north-east Brazil. AmBev already accounts for one in seven beers sold in Brazil, while Schincariol is the country's second largest brewer with a volume share of around 11%, although it operates predominantly at the budget end of the market.
Kirin's ability to achieve acceptable return on investment at Schincariol is already in question. In terms of wider implications, the longer the saga goes on, the more chance it has of tarnishing the group's judgement on takeovers in general.
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