* Acquisition helps Suntory expand beyond domestic market
* Suntory sees scope for gistics, procurement synergies
* Deal expected to be completed by end of year
* GSK expects net profit of 1.3 billion pounds
By Ben Hirschler and Ritsuko Shimizu
LONDON/TOKYO, Sept 9 Japan's Suntory Beverage &
Food Ltd is to buy GlaxoSmithKline Plc's
Lucozade and Ribena brands for 1.35 billion pounds ($2.1
billion) to help it expand into new markets.
The deal had been expected since people close to the process
said last week Suntory - best known for beer and Yamazaki whisky
- was in advanced talks on a purchase that would pre-empt an
auction of the British drinks.
Japan's second-largest drinks maker by sales after the local
arm of Coca-Cola Co has plenty of cash after raising $4
billion in a stock market flotation in June. It was always seen
as the most likely buyer for the brands after GSK announced
plans for their disposal in April.
The energy and blackcurrant drinks are popular in Britain
but from GSK's point of view lack global reach, especially in
the big emerging markets that are becoming the focus of the
British drugmaker's consumer health business.
For Suntory, however, they offer a growth opportunity to
counter sluggish demand at home.
One person at a private equity firm which had considered a
rival bid said Suntory was paying "a very hefty price",
explaining GSK's willingness to allow it to pre-empt an auction.
Lucozade and Ribena, introduced in 1927 and 1937
respectively, have combined annual sales of just over 500
million pounds, putting the transaction on a multiple of 2.7
times revenue - at the high end of recent soft drinks deals,
which have tended to be in the 1.5 to just over 2 times area.
Suntory bought the Orangina Schweppes drinks brand for more
than $3 billion in 2009, giving it a significant presence in
France and Spain. By acquiring a new business with a focus on
Britain, Suntory said it expected to further increase sales.
The purchase also extends its reach into countries such as
Nigeria and Malaysia.
Suntory Beverage President Nobuhiro Torii said the price was
justified because the chance to buy the brands was "an extremely
rare opportunity" and there was scope for cost savings in both
logistics and procurement.
"Considering synergies and such, this is not at all an
expensive purchase. I wouldn't say it's cheap, but it's not
expensive. Our management will be tested by how much we can
achieve in synergies," he told reporters.
Industry analysts said the price was high but the drinks
added strong brands and distribution channels that could be used
with Orangina to enter emerging markets.
Moody's Investors Service said in a note written before the
deal was unveiled that it viewed the expected acquisition as a
long-term positive for the Japanese company.
"One of Suntory's main rating constraints has been its
geographic concentration as about 80 percent of sales comes from
domestic sources. Acquiring these UK brands will improve its
geographic diversification," the ratings agency said.
Suntory said the deal would have a limited effect on its
2013 results and it was examining the effect it will have on its
outlook for the following business year and beyond.
The sale is expected to be completed by the end of the year,
subject to regulatory approvals.
For GSK, it will yield net proceeds of around 1.3 billion
pounds after tax, fees and costs, which will be used to reduce
debt and for general corporate purposes. That may disappoint
some investors who had hoped GSK might use the proceeds to pay a
The net gain will be excluded from 2013 core operating
profit and earnings per share.
A GSK spokesman said Suntory's bid was also attractive
because it would protect jobs in Britain. Some 700 employees
will transfer to the Japanese group, including around 500
workers at GSK's Coleford factory in the west of England.
The spokesman said there was expected to be very little, if
any, impact on jobs as a result of the sale.
Other potential buyers who had been eyeing Lucozade and
Ribena included Blackstone, Lion Capital, Cinven
, CVC Capital Partners and KKR.
JP Morgan and Greenhill acted for GSK on the
disposal, while Morgan Stanley advised Suntory.
Lucozade and Ribena are the latest in a series of venerable
British food brands to be bought by foreign buyers. Other deals
include last year's purchases of breakfast cereal Weetabix by
China's Bright Food and Branston pickles by Japan's Mizkan
Group, as well as the 2010 sale of chocolate maker Cadbury to
Kraft Foods Group Inc.