Andy Morton

Comment - Suntory Food & Beverage starts to flex financial muscles

By | 9 September 2013

Suntorys soft drinks unit has agreed to buy Ribena and Lucozade

Suntory's soft drinks unit has agreed to buy Ribena and Lucozade

Suntory Food & Beverage didn't exactly swipe Ribena and Lucozade from under the noses of the UK soft drinks industry.

But, in the manner of a well-funded sports team, it used its financial muscle to pre-empt an expected auction for the GlaxoSmithKline brands and snap up some top beverage talent

That, in side-stepping the auction, it paid a premium for two brands that boast about GBP500m (US$785m) in annual sales is likely not much of an issue for the division of Suntory Holdings. After all, when it launched an IPO last month, Suntory Food & Beverage raised close to US$4bn, much of which it earmarked for acquisitions abroad. Also, in Ribena and Lucozade it has two brands that have a firm foothold in the UK as well as in emerging markets such as Nigeria and Malaysia, where Suntory Food & Beverage has zero presence beyond a Malaysian outpost of its chicken essence maker. (One analyst told me that GSK may have also been able to extract a high price on the back of a resurfacing of a feel-good factor in the UK economy.)

So, while the Ribena and Lucozade purchase makes sense from a current strategic standpoint, it also ticks boxes for further down the road. Suntory has already said it plans to use the brands as a Trojan horse to smuggle its existing portfolio into the UK and other markets.

Meanwhile, the company has said it has no plans to launch its latest buys into its home market. But, that may change, and it's not hard to imagine the company looking for the same success for Ribena and Lucozade in Japan as it has found for Orangina, which is growing well in the company's homeland, according to one analyst I spoke to. Like Orangina, Ribena and Lucozade are well-positioned brands that can aim for global expansion without having to tweak their underlying formulas too much. Growing their success, particularly in Europe, may also give Suntory Food & Beverage the confidence to finally launch some of its Japan- or Asia-only brands into Western markets, something Suntory's beer unit has started, albeit on a small scale.

Initially, however, it is in the UK where this acquisition will spark most change. It signals the entrance into a competitive market place of a new player, and one with very deep pockets; perhaps deep enough to further change the soft drinks landscape. It is only a few months since AG Barr failed in its attempt to merge with Britvic, but the Irn Bru owner may now be regretting that it didn't offer more sweeteners to complete the deal with its UK rival. Indeed, Barr had been mentioned as a possible buyer of Ribena and Lucozade but, after missing out, it may now be the next target for Suntory Food & Beverage and its IPO billions.

Such a move makes strategic sense - Barr would get access to an international network that far surpasses the one it sought from Britvic, while, in Barr CEO Roger White and his colleagues, Suntory would have a crack management team to head up its new UK venture.

An obvious hurdle would be the high price Barr would command. Suntory would “have to pay up”, an analyst told me today, taking into account the political implications of the sale of a company with a strong Scottish heritage a year before the country votes on independence from the rest of the UK.

Yet, with Suntory's heaving war chest, a deal could be possible. And, Barr would find itself in control of Ribena and Lucozade, though under very different circumstances to what it previously envisioned.

Expert analysis

Beam Global Spirits & Wine, Inc. - Mergers & Acquisitions (M&A), Partnerships & Alliances and Investment Report

MarketLine's Company Mergers & Acquisitions (M&A), Partnerships & Alliances and Investments reports offer a comprehensive breakdown of the organic and inorganic growth activity undertaken by an organization to sustain its competitive advantage.

Sectors: Mergers & acquisitions, Soft drinks

Companies: Suntory, AG Barr, Britvic

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Round Up - Suntory Food & Beverage's Ribena, Lucozade buy

Suntory Food & Beverage has agreed to buy GlaxoSmithKline brands Ribena and Lucozade for GBP1.35bn (US$2.11bn). Read just-drinks' full round-up of the deal here

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