(Reuters) - Japanese brewer Asahi Group Holdings (2502.T) is close to finalizing a deal to buy soft drinks maker Calpis Co for $1.2 billion, sources said on Friday, bringing its M&A buying spree back to its shrinking home market as it seeks to bolster non-alcoholic earnings.
An acquisition would make Asahi, the maker of Japan's top-selling "Super Dry" beer, the nation's third-biggest non-alcoholic drinks maker and comes on top of some $3.7 billion in mostly small domestic and overseas deals in the past five years.
But it has been less aggressive than arch-rival Kirin Holdings (2503.T) in acquisitions and this month, it failed to get its hands on East European brewer StarBev, outbid by Molson Coors Brewing Co (TAP.N) which paid around $3.5 billion.
The Calpis deal, worth some 100 billion yen, will be announced in early May, said two sources close to the talks, who declined to be identified as the matter is not yet public.
Asahi said in a statement it was considering possible acquisitions but declined to elaborate further. Ajinomoto Co (2802.T), the seasoning maker which owns Calpis, declined to comment.
Faced with a declining population, uncertain economic prospects and constant deflation, Japan's many food and beverage makers are expected to continue a flurry of operational tie-ups and M&A.
"As the Japanese market continues to shrink, traditional rivals have increasingly begun to tie up in operational areas, like milk and beer firms have done with distribution, to stay competitive," said Ryuichi Kobayashi, an independent consultant for several Japanese retailers and consumer goods companies.
"Mergers and acquisitions within the industry are simply a continuation of this trend," he said.
With the Calpis purchase, Asahi would own the company's namesake milky soft drinks, popular with Japanese children.
Product expansion is an essential component in Asahi's plans to boost annual sales by up to 56 percent by 2015. It currently ranks fourth in the country's soft drinks market, trailing Coca-Cola Enterprises CCE.N, Suntory Holdings SUNTH.UL and Ito En Ltd (2593.T).
In Japan's beer market, Asahi commands 38 percent on the market, edging out Kirin which has 36 percent, but fast declining beer consumption has helped pushed both firms overseas.
In recent years, Asahi has bought Australia's Schweppes, New Zealand's Independent Liquor and a stake in China's Tsingtao Brewery.
Kirin has completed much bigger deals, buying Brazil's Shincariol, Australia's Lion Nathan and a large stake in San Miguel Brewery of the Philippines.
Asahi shares fell 1 percent, compared with a 0.4 percent decline in the benchmark Nikkei 225 .N225. ($1 = 80.7900 Japanese yen)
Additional reporting by James Topham and Ayai Tomisawa; Editing by Ryan Woo and Edwina Gibbs