Analysis - Beer shares dive on Kirin, Suntory breakdown

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Analysts and investors have reacted badly to a breakdown in merger talks between Kirin Holdings and Suntory.

Kirin's shares price tumbled 7% on the Tokyo Stock Exchange today (8 February), after it announced an end to merger talks with Japanese drinks rival Suntory.

Both firms claimed to have terminated negotiations, seemingly mirroring the power tussle that has been played out behind the scenes over the last six months.

The root of the breakdown was disagreement over the makeup of the merged entity and the way it would be run. Kirin is a publicly listed company, while Suntory is a private enterprise with a different business ethos.

A breakdown in talks has been greeted as a negative for the whole Japanese drinks sector.

Shares in rival Asahi Breweries, which has played no part in negotiations, fell by more than 5% on the Tokyo Stock Exchange today.

"We see termination of the merger talks as negative not only for Kirin’s longer-term strategy but also for the brewing industry as a whole," said an analyst at Goldman Sachs in Tokyo.

"We would have expected the merger to result in lower sales promotion spend for the industry. The news can therefore also be seen as negative for Asahi Breweries."

The analyst added: "From a Kirin standpoint we think it is rational to opt for no merger rather than one with irrational conditions, but we see termination as negative for the medium to long term due to the substantial potential synergies."

Aside from potential synergies, it could be argued that only a combined company would have the clout necessary to compete with top multinationals in the beer sector and beyond.

Japan's major brewers are looking to expand outside of a domestic market in terminal decline. Market volume sales fell 2% in 2009, a record low for the fifth straight year, according to industry figures.

Bearing this in mind, a deal between Suntory and Kirin, or perhaps a combination of any of the major brewers, may not be dead.


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