TOKYO (Reuters) - Top Japanese brewer Kirin Holdings 2503.T will buy Australian dairy and juice producer National Foods for $1 billion from Philippine partner San Miguel Corp SMC.PS as it seeks growth away from stagnating beer sales.
The brewer of Ichiban and Kirin Lager beers said on Thursday it would also take on debt of about $1.5 billion held by National Foods, Australia’s largest processor of milk, dairy products and juice.
Kirin, which ranks well ahead of local rival Asahi Breweries Ltd 2502.T by market value, has made a string of purchases in recent years, including last month's $2.6 billion bid for control of Japanese drug maker Kyowa Hakko Kogyo Co 4151.T.
“The domestic beer market isn’t quite what it could be, so they’re trying out other things, as with the Kyowa Hakko bid,” said Junichi Misawa, senior fund manager at STB Asset Management.
“But if it wants to stay with its core strengths, it really has to go overseas,” he said.
Kirin also owns 46 percent of Australian brewer Lion Nathan Ltd LNN.AX, which will buy Tasmanian brewer J Boag for A$325 million ($304 million) from San Miguel, increasing Lion's share of the Australian beer market to 44.5 percent from 42 percent.
San Miguel, 20 percent owned by Kirin, is selling out of the beverage business in Australia as it diversifies into heavy industry such as power, mining, infrastructure and utilities.
Kirin shares fell 2.2 percent to 1,697 yen on Thursday, in line with a weaker Nikkei average .N225. Lion Nathan shares fell 3.3 percent to A$8.99. San Miguel B shares SMCB.PS, which are open to foreign investors, were flat at 58 pesos, while its A stock, restricted to local buyers, eased 0.9 percent to 55 pesos.
COST CUTS, SYNERGIES
Kirin, which is already strong in soft drinks, said buying National Foods would not only give it growth opportunities in Australia but allow it to expand its food business in Asia and Oceania. National Foods has 24 production sites, including two in Indonesia and two in Malaysia.
The Japanese beer maker said it would also pursue cost and procurement savings through Lion Nathan and National Foods, which boasts the Pura Milk and Berri juice brands as well as speciality cheese brands such as King Island Dairy.
Kirin estimated its National Foods buy would boost group operating profit by two-thirds to 190 billion yen ($1.67 billion) in 2009, from a projected 114 billion yen this year, while it saw group sales growing 47 percent to 2.65 trillion yen.
Kirin President Kazuyasu Kato said he was open to more acquisitions.
“It’s not that we have any concrete deals at the moment, but we would consider acquisitions, in any business areas, if they would help boost our corporate value,” he said.
Kirin plans to pay 12-13 times National Foods’ 2008 forecast EBITDA (earnings before interest, taxes, depreciation and amortization), above the average of 10 times earnings at which its global peer group is trading, Morgan Stanley analyst Taizo Demura said in a conference call.
Kirin said it would fund the deal with loans, mostly in yen, taking advantage of Japan’s low interest rates.
Kato said Australia’s dairy products market was crowded and the market was likely to face consolidation, but he declined to comment on National Foods’ rival Dairy Farmers, which some news reports said Kirin might try to buy to minimize the impact of rising dairy prices.
The National Foods deal is Australia’s fifth largest inbound cross-border deal this year, and is the world’s eighth biggest food and beverage deal, according to data gatherer Dealogic.
Kirin said it would aim to boost profit from next year by hiking product prices, putting more focus on high-margin products and benefiting from Australia’s strong economic expansion.
San Miguel’s sale of Australian assets comes as it aims to diversify into power, utilities, mining and infrastructure to drive growth after dominating its home market for beer, liquor, dairy, processed foods and poultry for decades.
It is bidding for a 60 percent stake that the Philippines is selling this month in geothermal firm PNOC-Energy Development Corp EDC.PS, worth nearly $1.3 billion at current prices. If it doesn't win at the PNOC-EDC auction, San Miguel plans to bid for a $3 billion license to run the country's power grid.
($1=1.07 Australian Dollar, 112.73 Yen)
Additional reporting by Elaine Lies and Edwina Gibbs in TOKYO, Rosemarie Francisco and Carmel Crimmins in MANILA, Gyles Beckford in WELLINGTON and Victoria Thieberger in MELBOURNE, Fayen Wong in SYDNEY; Editing by Jean Yoon
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