Kirin Holdings tames F&N shareholder

Kirin Holdings tames F&N shareholder

Kirin Holdings' deal to acquire a 15% stake in Fraser & Neave sees the Japanese firm cosying up to Heineken and could mark another significant milestone in its strategy to dominate South East Asia's food and beverage sector.

Kirin's JPY84.6bn (US$967.8m) deal, announced yesterday, is set to make it the second largest shareholder in Fraser & Neave (F&N), which brews Tiger beer via its Asia Pacific Breweries joint venture with Heineken in Asia Pacific.

The move is the latest in Kirin's aggressive expansion plan - having last year acquired Lion Nathan and a 48% stake in San Miguel Brewery - which is all part of the group's strategy to reduce reliance on a shrinking Japanese beer market, not to mention a stifled domestic economy. 

The firm has been casting around for further growth opportunities after merger talks with its domestic rival, Suntory Holdings, broke down earlier this year.

Kirin's shares actually slipped by around 0.3% yesterday as the group announced concurrently that profits and sales would be lower than expected for the first half of 2010. Investors, then, were not exactly wowed by the F&N deal.

That may be because, over the short-term, this does not change a whole lot. Yet, the move looks extremely promising over the longer term.

CIMB bank said in a note that it believes Kirin may take a larger stake in F&N in the future. This would certainly fit with the company's long-term plan to become "a leading company in the areas of beverages, food and health across Asia and Oceania".

Food and beverages accounted for 57% of F&N's annual sales in the firm's most recent fiscal year, compared to 60% in the previous year. The division has become more important to F&N's profitability over the last couple of years, due to a decline in income from property during the global economic downturn. Food and drink generated 29% of the firm's profits last year, up from 18% a year earlier.

Kirin's access to South East Asian beer markets is particularly enhanced via its tie-up with F&N, thanks to F&N's 50-50 Asia Pacific Breweries (APB) venture with Heineken.

APB recently reported 17% rise in sales and a 45% jump in profits before tax, interest and one-off items for the half-year to the end of March. The Tiger and Anchor beer brewer has 36 breweries covering most South East Asia's emerging beer markets, including China, Vietnam and Indonesia.

At the same time, Kirin's deal with F&N has, via the APB venture, strengthened the Japanese brewer's ties with Heineken. Kirin-owned Lion Nathan already distributes the Heineken brand in Australia, but the F&N stake buy opens the door to possible co-operation in many other markets.

This may include India, which is becoming a highly-prized market in Japanese brewing circles and where Heineken holds a 37.5% stake in the country's leading brewer, United Breweries.

Kirin ended 2009 by launching the consolidation phase of its 2015 growth strategy, yet the firm evidently believes that F&N was too good an opportunity to miss. Looking at the numbers, it's not hard to see why.