In the Spotlight – Suntory's swoop for Orangina
Suntory Holdings seems to have its hands full at the moment. Not only is it in merger talks with Japanese rival Kirin Holdings, but it is now close to a deal to buy the French soft drink brand Orangina. Michelle Russell examines the prospective deal.
The privately held Japanese beverage group is in talks with private-equity owners Blackstone Group and Lion Capital Holdings in a bid to expand its business interests beyond Japanese shores.
Many believe that a deal for Orangina could spark consolidation in the beverage industry, the potential deal showing that, after a period of inertia, the global mergers-and-acquisitions market may be coming back to life.
It would be a welcome sign for beleaguered private equity firms crippled by the mergers-and-acquisitions drought and the disappearance of the easy credit on which they thrived.
A three-year exit from Orangina would also mark a successful exit for Blackstone and Lion.
"I think we're going to see more deals and deals at higher prices," said Tom Pirko, president of Bevmark, a beverage consulting firm. "It's going to be a good time, for the first time in a long time, to be a seller, as opposed to just a buyer."
A deal on Orangina is expected to be reached this week and the price is likely to exceed the US$2.6bn Blackstone and Lion paid Cadbury when they bought it three years ago, the Wall Street Journal reported.
Analysts said at the time that the private equity firms would likely not keep the business for the long-term and may work on an exit strategy of around five years.
Talks are said to be "at a delicate stage", and it is not guaranteed that a deal will actually be reached. Suntory rival Asahi was today touted as a latecomer to the bidding table.
The deal, if it proceeds, would add a range of well-known soft drink brands to Suntory's large, but mostly domestic-focused portfolio. It will allow Suntory the distribution rights to the Schweppes and Oasis brands in the North East Asian region. Add that the one of its biggest assets - the local Japanese distribution rights to PepsiCo.
Orangina Schweppes, as it was renamed in February, has more than 2,500 employees and 23 brands including sports drinks, mineral water and juice. Its products are sold mainly in Europe with some sales in Africa, Asia and the Middle East.
Yet it seems worsening prospects for the Japanese soft and alcoholic drinks markets are forcing Suntory and others to turn their attentions abroad.
'I don't know the details of the (Orangina) deal yet, but it seems to fit Suntory's strategy to expand its overseas business, which is the purpose of the merger with Kirin,' said Tomonobu Tsunoyama, food sector analyst at Tokai Tokyo Research Center.
Tomonobu Tsunoyama, an analyst at Tokai Tokyo Research Center told Bloomberg that the European drinks market is so far dominated by local players.
"The Japanese market is shrinking and beverage makers need to tap overseas markets for growth so the move make sense," he said.
Suntory and rival Kirin Holdings said in July that they had begun preliminary talks to create a food and beverage giant with some $41bn in annual sales.
Analysts believe the combination, which would control half of Japan's beer market and 30% of soft drinks, would bulk them up to pursue large deals overseas.
In 2008, Suntory had revenue of about $1.5bn, and Nobutada Saji, Suntory's president, declared earlier in the summer that he had set aside about $2bn for overseas deals.
This latest deal for Orangina, however, would launch Suntory more directly onto the European drinks scene.
Last year, Osaka-based Suntory outbid Kirin and Asahi Breweries with a more than EUR600m deal for Danone's Frucor juice unit in Australia and New Zealand, an early signal that it was interested in non-Japanese markets.
A completed deal for Orangina could be a step in the right direction for Suntory, which saw its European sales fall 29% to JPY9.2bn in 2008, accounting for 0.6% of total revenue of JPY1.5tn.
Organgina has about 2,500 employees and had 2008 sales of about EUR1bn.
"Purchasing Orangina would be a stepping stone to further development in global markets, including Europe," Shigeo Kikuchi, an equity manager at Takagi Securities told Bloomberg. "Japan's beverage industry is saturated and companies need to look for overseas markets to grow so the move is inevitable."
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