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Sapporo shares rise on hopes for white-knight bid
February 19, 2007 / 9:11 AM / 11 years ago

Sapporo shares rise on hopes for white-knight bid

TOKYO (Reuters) - Sapporo Holdings (2501.T) shares rose more than 2 percent on Monday to their highest level in 9-½ years as investors bet on white-knight bids for Japan’s third-biggest beer maker to counter a $1.3 billion takeover attempt from a U.S. hedge fund.

The stock climbed 2.4 percent to 912 yen by the market’s close, 10.5 percent above Steel Partners’ offer price of 825 yen, after media reported over the weekend that bigger rivals Asahi Breweries (2502.T) or Kirin Brewery (2503.T) may seek tie-ups with Sapporo to boost their presence in the sluggish beer market.

“It’s a tough call,” said Tomomi Yamashita, senior fund manager at Shinkin Asset Management, about the prospect of a white knight stepping in on Sapporo’s behalf. “But Steel Partners is probably counting on that.”

At this stage, financial institutions are the main players pushing for the deal between Sapporo and one of its rivals. Asahi and Kirin remain cautious and have said their growth focus is on non-core operations such as food and health.

If Asahi or Kirin, Japan’s top two beer makers, were to buy Sapporo, antitrust issues could stand in the way because the deal would give either of them a domestic market share of more than 50 percent.

Because of this, analysts say fourth-ranked Suntory Ltd., other food and beverage companies or even real estate developers could emerge as white knights instead of Asahi or Kirin.

“Asahi or Kirin could buy Sapporo, but it seems more likely that it would be a company that doesn’t have a beer business... there is also the possibility of a foreign company,” Shinkin’s Yamashita said.

Sapporo shares have jumped 29 percent since the beginning of this month, and the Nikkei business daily said on Monday the high price was deterring rival beer makers from making bids. The stock’s current price is 104 times the company’s 2007 forecast earnings, compared with Asahi’s 20.5 and Kirin’s 33.

The Nikkei said on Saturday Asahi would propose a business and capital alliance to Sapporo, while the Yomiuri daily reported on Sunday Asahi was considering buying all of the 18.64 percent stake in Sapporo that Steel Partners group now holds.

The Yomiuri paper said on Monday Asahi aimed to reach an agreement on a capital tie-up by the end of the month.

Steel Partners has sought approval to raise its Sapporo stake to 66.6 percent, but its offer price was only 4.3 percent higher than the closing share price on the day before the proposal, a move seen as inviting a white-knight bid.

“The ball is in Sapporo management’s court at the moment,” said a spokesman for Steel Partners, noting that the fund had given management 10 business days from February 15 to respond to their proposal.

He declined to say whether the fund would raise the bid price.

Goldman Sachs estimates Steel Partners has acquired Sapporo shares at an average price of 463 yen, meaning the fund would gain a profit of some 31 billion yen ($260 million) if it sold its entire stake at the current price.

The fund, run by financier Warren Lichtenstein, has launched three tender offer bids in Japan -- for noodle maker Myojo Foods Co. Ltd. 2900.T, woolen fabric dye-finisher Sotoh Co. Ltd. (3571.T), and metal-working oil firm Yushiro Chemical Industry Co. Ltd. (5013.T).

None of these bids were successful, but Steel Partners benefited each time from share price gains in its targets.

Sapporo is advised by Mizuho Securities.

Sapporo has struggled to boost its share of the beer market due to weak brands and marketing power. But its real estate business is strong, benefiting from robust demand for office space and rising rents amid steady economic growth in Japan.

Sapporo’s real estate division produced the bulk of group operating profit in 2006. It also has beverage and restaurant operations. (Additional reporting by Alison Tudor and David Dolan)

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