Comment - Suntory/Kirin - Enter Godzilla
The US has Budweiser, the so-called King of Beers. Soon Japan may have a Godzilla. Kirin, the country's biggest maker of suds, is mulling a merger with family-owned drinks maker Suntory, according to the local press. The resulting monster would have a dominant position in the Japanese beer market, could create lashings of synergies and might even do some damage overseas.
Kirin and Suntory already share one thing: an over-reliance on Japan. Along with rivals Asahi and Sapporo they're chasing a revenue pool set to decline by at least 3% this year. High taxes contribute to low operating profit margins - 5.4% at the unquoted Suntory, according to Moody's. That's a quarter of the level at AB Inbev, which owns Bud.
Crunching together Kirin and Suntory wouldn't make the Japanese drink more beer, but a more concentrated market should be more profitable. The idea of shutting down any of Suntory's four plants might not play well with Japan's unemployment at a six-year high, but the prospect leaves savings for a rainy day.
Far jucier would be the synergies from being Japan's dominant brewer, with a combined market share of more than 50%. In particular, the Godzilla of Beers could expect to splash less cash on promotion and marketing.
Suppose it cut this spending from the whopping 17% of revenue Japanese brewers currently lay out, according to Credit Suisse, to the 11% AB Inbev spends in North America. On the two companies' combined drinks revenues of around $34bn, they would save just over $2bn a year - which taxed at Kirin's effective 40% rate and capitalised is worth $12bn today. A chunk of that should help convince Suntory's owners, the Saji family, to relinquish their grip on the company.
The real prize for both brewers, though, would be to create a beverage monster with a balance sheet big enough to snap up tasty morsels overseas. Both Kirin and Suntory have nibbled already. Kirin owns Australia's Nathan Lion and a stake in San Miguel of the Philippines while Suntory has bought Danone's Australian drinks business. Time to chomp through some even bigger prey.
By John Foley
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