Kirin moves in on San Miguel Brewery

Japan's Kirin is in exclusive discussions to buy San Miguel's beer business, which includes the Philippines' top four brands, in a deal worth an estimated $1.25 billion.
JapanÆs Kirin Holdings and San Miguel Corporation yesterday announced that they have signed a memorandum of understanding which includes an exclusivity clause for Kirin to acquire a further 43.25% stake in San Miguel Brewery. No financial details were disclosed, but based on San Miguel BreweryÆs last traded share price, the stake is estimated to be valued upwards of $1.25 billion.

Kirin and San Miguel Corporation have had a strategic and financial partnership since 2001. In December 2001, Kirin agreed to acquire 15% of San MiguelÆs equity by subscribing to newly issued shares and negotiated the right to be involved in San MiguelÆs management. KirinÆs stated intention was to grow revenues from its beer business outside Japan by having a foothold in a strong Southeast Asian business. Then in December 2005 Kirin upped its stake to 19.7% by buying part of the holdings of the San Miguel Corporation Retirement Plan.

It is not clear what plan the two parties have with respect to KirinÆs stake in San Miguel Corporation, the parent company of San Miguel Brewery. It is possible that Kirin could put the San Miguel Corporation shares back to the parent and reduce its outlay for the brewery business.

San Miguel Brewery is the largest beer producer in the Philippines with a dominant market share and a product portfolio of eight beers, including the country's top four brands û San Miguel Pale Pilsen, Red Horse, San Mig Light and Gold Eagle. It has five breweries strategically located across the Philippines and a distribution system serving around half a million outlets.

A research report on San Miguel Brewery issued in the fourth quarter of 2008 by AB Capital Securities notes that the companyÆs performance would be affected by the global economic slowdown ôbut since it is a consumer company, it should fare better than companies in other sectorsö.

Kirin has a presence in alcohol and soft drinks, pharmaceuticals and food products, including dairy. Over the past few years, Kirin, which is best-known within Japan as a brewer, has sought to diversify its revenue stream away from a dependence on beer as wines and spirits have eroded the consumer preference for beer. Also, JapanÆs population is aging, which is bringing down overall alcohol consumption.

In 2007, Kirin acquired National Foods, headquartered in Melbourne, from San Miguel Corporation. National Foods currently accounts for around 45% of milk sales in Australia and is also a leading player in yoghurt. In August 2008, National Foods shelled out $790 million to take over Dairy Farmers, a Sydney-headquartered milk co-operative and Australia's second-largest producer of fresh dairy products for retail customers, after National Foods.

Then in November 2008, Kirin Brewery acquired from Diageo plc the right to import and market four varieties of Guinness stout beer, two varieties of Kilkenny ale-type beer, and four varieties of ready-to-drink Smirnoff Ice in Japan, effective June 2009. The intent was for Kirin to broaden the base of its domestic alcohol business.

Also in November, Kirin announced that its Sydney-based affiliate company, Lion Nathan, is in discussions regarding a potential merger with Coca-Cola Amatil, Oceania's leading non-alcoholic beverages company, for A$8 billion ($5.3 billion) in a combination cash and share deal.

On the brewery deal San Miguel is represented by RBS, while Kirin is represented by Nomura.
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