Kirin, Suntory cancel integration due to difference over merger ratio

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TOKYO, Feb. 8 Kyodo -
Kirin Holdings Co. and Suntory Holdings Ltd. said Monday they have ended talks
on integration, citing differences over the merger ratio, in a breakdown of a
deal that would have created one of the world's largest food and beverage
makers.
The collapse of the talks, which began last summer, sent Kirin's share price
plummeting over 8 percent at one point during Tokyo trading, highlighting the
need for the company to find a new strategy to boost its presence in growing
overseas markets amid saturated demand at home.
''We tried to continue our negotiations as much as possible in view of the huge
role the merger would play for our company to survive global competition,''
Kirin President Kazuyasu Kato said at a news conference in Tokyo.
''The biggest reason (for the breakdown) was the failure to reach a common
understanding on how to manage the new merged entity on the premise that it
would be a listed, public firm,'' he added.
Separately, Suntory President Nobutada Saji, who met with Kato in the morning,
said the talks were canceled due to major differences over the merger ratio.
''We may consider a merger with an overseas company,'' Saji told reporters,
adding, ''It would be easier to talk with a nonlisted overseas company.''
Kirin, which overtook Asahi Breweries Ltd. as Japan's biggest brewer last year,
had hoped to have the merged company listed to ensure ''management independence
and transparency,'' according to Kato. But it apparently could not narrow its
differences with Suntory, which is not listed and is majority owned by members
of the founding family.
Suntory's Saji argued back, saying, ''I don't know what he (Kirin's Kato) means
when he says lack of transparency.''
Kato said the company will continue to seek merger and acquisition deals, and a
new, strong partner as part of its key growth strategy to expand its presence
in overseas markets, but did not disclose further details.
''We're not going to carry out just conventional business that will only be an
extension of organic (growth),'' he emphasized.
Japanese beverage and food makers are increasingly searching abroad for growth
opportunities with Kirin buying Australia's top two dairy firms, National Foods
Ltd. and Dairy Farmers Ltd., while Suntory clinched a deal to buy European
beverage maker Orangina Schweppes Group.
The Kirin-Suntory merger would have created combined sales of around 3.8
trillion yen, giving them a strong competitive edge against the world's top
brewer, Anheuser-Busch InBev of Belgium and Coca-Cola Co. of the United States.
Sources familiar with the matter had said members of Suntory's founding family
were insisting on owning a combined stake of more than 33.3 percent in the
holding firm to be created through the merger, which would have given them the
ability to veto any major management decisions.
Kato denied that the stake to be owned by Suntory's family members was the key
cause behind the breakdown of the talks.
But he disclosed that as the talks progressed, Suntory came up with various new
requests on the merger ratio that ran counter to their original agreement to
manage the new holding company as a public, independent firm.
The founding family's asset management company currently holds more than 90
percent of Suntory shares. Whether Kirin would compromise on the merger ratio
had been the key focal point of the talks between the two firms.
''There is no doubt that the founding family members will become a major
shareholder (following the merger) and there will be no integration if that is
not realized,'' Saji emphasized.
Kato said Kirin has no plans of charging a penalty to Suntory, the No. 3 brewer.
The proposed merger between Kirin and Suntory had also raised questions about
whether it would secure approval from antitrust authorities as they would
dominate over half of the domestic beer market and over 30 percent of the
domestic soft drinks market if they integrated.
''The hurdles were high to begin with, so this was not an issue that the
company managers could easily push forward,'' said Yoshiyasu Okihira, an
analyst for Credit Suisse Securities (Japan) Ltd.
''The breakup (of the talks) does not eliminate M&A moves within the
industry,'' he added.
Following the announcement of the cancellation of the talks, the Tokyo Stock
Exchange temporarily halted trading in Kirin shares to provide time for
investors to digest the information. The share price was down over 7 percent at
1,337 yen at the close of Tokyo trading.
==Kyodo
2010-02-08 23:37:44