Asahi could splash out US$1.2bn for soft-drinks maker Calpis Co

Asahi could splash out US$1.2bn for soft-drinks maker Calpis Co

An Ashai Group buyout of Calpis Co is a great chance for current owner Ajinomoto to offload a weaker business, a drinks analyst has told just-drinks.

Late last week, a Japanese newspaper reported that Asahi is on the verge of snapping up the soft-drinks maker for JPY100bn (US$1.2bn). The sale, if completed, would make Ajinomoto more likely to achieve its goal of an 8% return on equity (ROE) by full-year 2013, said Torsten Stocker, partner at consulting firm Monitor Group.

Ajinomoto's full-year ROE in 2010 was 5% compared to 3% for Calpis, whose 4% operating margin was two percentage points lower than its parent company over the same period.

“As a step to becoming a major global food player, selling out a relatively weaker businesses would allow Ajinomoto to focus investments on its core business segments and improve its competitiveness there,” said Stocker.

“It is hard for Ajinomoto to increase the value of Calpis, given the structure of the beverage market in Japan. Food and beverage is more or less an oligopoly and beverage players need to have a comprehensive value proposition, including a broad product portfolio, to gain share, and advertising and promotion costs are substantial.

“Just having a strong brand in lactobacillus beverages, which is the essence of Calpis's business, is not enough.”

Stocker said the buyout will help Asahi reach its own target of JPY2tn (US$24.9m) to 2.5tn in sales by full year 2015. 

Asahi has recently gone through a series of mergers and acquisitions in pursuit of that goal.

The group bought Rokkou no Oishii Mizu, a major mineral water brand, from House Foods in 2010 and in the same year bought the Rokujo Mugicha tea brand from Kagome.

Stocker said Ashai's share price on the Tokyo Stock Exchange dropped on Friday because investors seemed sceptical of Calpis growth under its ownership.

Ajinomoto's price also fell as the market waited to see how it would use the cash from the deal, Stocker said.

Friday's newspaper report said the buyout will be announced early next month, citing sources close to the deal.

However, nothing is likely to happen this week as Japan started its ten-day Golden Week holiday on Saturday and most businesses will not open again until 7 May.