JAPAN: Kirin Holdings pays high price for Schincariol - analysts
Kirin Holdings faces legal dispute, questions over price paid for Schincariol stake
Kirin Holdings has been forced to defend the legality of its deal to acquire control of Schincariol, as analysts warn that the Japanese brewer has paid a high price.
Some members of the Schincariol family have labelled Kirin's deal to take a 50.45% stake in the Brazilian brewer as illegitimate, according to reports. The triumvirate of rebels, all cousins, own 49.55% of Schincariol.
Last night (2 August), Kirin defended the legality of its BRL3.95bn (US$2.6bn) deal, which will see it take a controlling stake in Brazil's second largest brewer by acquiring the shares of brothers Alexandre and Adriano Schincariol.
The dispute could delay Kirin's completion of the deal and, even if achieved, presents the potential for flashpoints at boardroom level. The Japanese brewer has said that it will keep the current management team in place, as it did with Lion Nathan in Australia.
News of Schincariol shareholder unrest, which has previously been cited as a reason for other multinational brewers pulling back from a deal, came as analysts warned that Kirin has paid a high price to enter Brazil.
"We remain intrigued as to what Kirin sees in Schincariol to pay such a rich - maybe even unprecedented - valuation," said JP Morgan analysts yesterday. "Schincariol generated only BRL434m (US$280m) of EBITDA in 2010," they said. "Therefore the implied trailing EV/EBITDA is 20x."
The average multiple for deals in multinational brewing is around 12x forecast EBIDTA.
Kirin said that the deal fits with its general stratetgy to expand beyond Japan's sluggish drinks market and that Schincariol represents a rare opportunity in a hotly-tipped beer market.
However, Schincariol accounts for around one in ten beers sold in a country dominated by Anheuser-Busch InBev's AmBev, which has a 70% volume market share. Schincariol also has much lower profitability, with net profits of just BRL54m from net sales of BRL2.85bn in 2010, according to Kirin figures.
Analysts at MF Global, however, saw positives for Kirin. "Profits at Schincariol are low now, but are being suppressed by high amortisation costs due to a lot of up-front investment in 13 factories in Brazil, and because the founding family have been putting their personal expenses through the company," they said.
"We see the potential for mix improvements in the Brazilian market through development of the premium segment."
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