TOKYO, Jan 17 (Reuters) - Suntory Holdings' high-multiple acquisition of Beam Inc boosts the Japanese group's U.S. market share, but the U.S. bourbon maker's sales and distribution networks in Asia and other emerging markets may yet be the deal's trump card.
"We will go after (emerging markets) together," Shingo Torii, Suntory's senior executive vice president, told reporters at a media event in Osaka earlier this week.
"Creating new value for whisky was the aim (of the Beam acquisition). Of course people care about the financial side and how valuable it will be, but the value will come in 10 years. We have a clear goal," he said, adding Suntory expected increased cashflow over the next decade to ease the burden of borrowing as much as $14 billion to fund the acquisition.
Without obvious cost-saving synergies, the total $16 billion purchase price - at more than 20 times Beam's earnings before interest, tax, depreciation and amortisation - is among the most expensive in the industry. Some analysts say Suntory is paying too much just to access Beam's U.S. sales.
But, as Japan's thirst for spirits dries up in an ageing population and as younger generations are more health-conscious, Suntory's rationale is likely the explosive growth elsewhere in Asia Pacific - a region that is forecast to account for 61 percent of the global spirits market by 2017, up from 55 percent.
"The domestic alcohol and soft drinks markets are saturated, so they have no choice but to go abroad ... It's like the shrinking cigarette market, which forced Japan Tobacco to go to China, Russia and so on for growth," said Yoshiaki Yamaguchi, senior analyst at SMBC Friend Research Center in Tokyo.
More than 90 percent of Suntory's business is still in Japan, even as exports of its premium whiskies have soared over the past decade on the back of international awards. It has yet to make a significant dent in the fast-growing emerging markets where Beam is better known.
Suntory's push into markets such as China, Brazil and India will be helped by Beam's networks in countries where strict regulations and complex distribution systems can confound the new entrant. Suntory will also be able to piggyback on Beam's international brand recognition to introduce its own liquors.
"A lot of people won't know names like (Suntory's) Hakushu, Yamazaki and Hibiki, but there are probably lots of countries that know Jim Beam," said Yamaguchi.
Suntory already distributes Jim Beam in Japan, while Beam distributes Suntory's whiskies in Hong Kong and much of Southeast Asia. As it adds Beam's bourbons, Scotches and other liquors such as Sauza tequila and Courvoisier cognac to its portfolio, Suntory will become the third-biggest premium spirits company in the world.
Beam claimed 2 percent of the Chinese spirits market in 2012, according to Euromonitor, which forecasts that market will grow by half to nearly 30 percent of the global total by 2017.
Beam's Teachers Highland Cream is among the best-selling whiskies in India, shifting 440,000 cases in 2012, according to the International Wine and Spirits Record. Its 24 percent compound annual growth in 2008-12 was stronger than the overall whisky market. Overall demand for spirits in India rocketed 70 percent in the five years to 2012.
But Beam lost market share in India last year after shutting several business units, industry officials say, following media reports in late-2012 that the company was investigating potential violations of the U.S. Foreign Corrupt Practices Act.
"In the past 2 years, Beam has kept a very low profile in the market and has not been investing a lot. If you compare their focus with, say, Diageo or Pernod, they are far behind," said Saloni Nangia, president at retail consultancy Technopak in India.
"The company did have to make a lot of organisational changes. What they need to do now is invest and that's where Suntory can help because Beam has one of the largest-selling whisky brands in the country," she added.
Beam's India revenue of $47 million in 2012 gave it just a 0.1 percent share of the spirits market, according to Euromonitor, dwarfed by Pernod Ricard's 9.7 percent share and $990 million in revenue, according to the International Wine and Spirits Record.
Suntory hopes to build on that share, as it has done with other acquisitions in new markets. "We have many examples of where we've succeeded in doing that in the past - such as introducing (melon liqueur) Midori internationally," said Torii.
The group has become aggressive in its foreign acquisitions since its president, Nobutada Saji - grandson of the privately-owned company's founder, and Japan's second-richest man according to Forbes - took the reins in 2001.
After buying France's Orangina Schweppes for more than $3 billion in 2009, Saji entered merger talks with domestic rival Kirin Holdings Co Ltd, but pulled out to focus on his own company's international expansion.
Last year, he floated the food and non-alcoholic drinks business, Suntory Beverage & Food Ltd, for $4 billion to fund foreign buys, spending $2.1 billion on GlaxoSmithKline's drinks unit which included Lucozade and Ribena.
After posting six straight years of record sales - up to 1.85 trillion yen in 2012 - Suntory set a 2 trillion yen ($19.35 billion) annual revenue target, with a quarter of that coming from international sales, to be achieved "as soon as possible".
Suntory's international sales in 2012 were 21 percent of the total, but adding Beam's revenue for the year would have lifted that to almost a third.