Kirin Holdings could swoop on San Miguel Brewery

Kirin Holdings could swoop on San Miguel Brewery

San Miguel Corp's announcement this week that it plans to raise US$1.6bn to finance its diversification into heavy industries could signal that the firm is on its way out of the beer business.

The news must have pricked some ears across the Philippine Sea at Kirin Holdings' headquarters in Japan.

San Miguel Brewery, with its 93% share of the Philippine beer market, is the foundation stone for San Miguel Corp; described in the company's own words as its "flagship business".

Yet, everything that has emerged from San Miguel Corp (SMC) headquarters in the last 18 months suggests that the group views beer as yesterday's news.

Investment in infrastructure, from nuclear power to airlines and from mining to telecommunications, is the order of the day for SMC, as part of what the firm calls its "diversification" strategy.

However, this is starting to look less like diversification and more like a complete overhaul of the business. SMC president and chief executive Ramon Ang already describes drinks, food and packaging as the company's "old businesses". 

Added to that, SMC confirmed earlier this year that it would be willing to sell all outstanding shares in San Miguel Brewery should the offer be right. No offers had been received, it said, but the 'for sale' sign was clearly being hoisted.

Given that Kirin accrued a 48% in San Miguel Brewery last year, the Japanese brewer must be odds-on to take the rest if it is available. If a deal is forthcoming, then Kirin would also take control of SMC's international brewing assets, which it placed within San Miguel Brewery last year.

This would significantly enhance Kirin's position in South East Asia and Oceania, following its acquisition of Australia's Lion Nathan last year and this week's announcement that the Japanese firm will acquire a 15% stake in Tiger beer producer Fraser & Neave.

However, things may not be that simple. While SMC has preached diversification, the figures show that the company remains heavily reliant on beverages, which accounted for 46% of net sales and a hefty 72% of operating profits in 2009.

Beer has also performed relatively well during a tough economic climate. San Miguel Brewery reported a 7% rise in net sales in the first quarter of 2010, on the back of a 5% increase for the 12 months of 2009, compared to the corresponding periods of the previous year.

Then, there is the historical context. Beer is the root of all that SMC has become and losing control of San Miguel Brewery would be controversial for the company, whatever one's views on the place of sentiment in business.

For practical reasons, SMC may not be ready to divest control in San Miguel Brewery just yet, but it looks to be a case of when, not if.

Kirin's boardroom must be brimming with anticipation.