TOKYO Jan 17 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
"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
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 ME UP
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
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.