Kirin Ends Suntory Talks, Rejecting $10 Billion Price

Kirin Holdings Co., Japan’s largest beverage company, ended talks to buy Suntory Holdings Ltd. that would have created the world’s fifth-biggest foodmaker after balking at a $10 billion asking price. Kirin shares fell the most in 15 months.

The founding family of closely held Suntory had been seeking a stake of at least 33.4 percent in the merged company, which would have given it veto power over takeovers and other major decisions. Kirin wasn’t able to gain “appropriate management independence,” the company said in a statement today.

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Tokyo-based Kirin announced the talks in July as it sought to eliminate its main domestic rival, and create a company with higher gross margins and the Suntory whiskey, Malt’s beer and Boss canned coffee brands. Kirin President Kazuyasu Kato has spent $7 billion expanding overseas in the past three years as a declining population and stagnant economy saps demand at home.

“The merged company would have had more scale to pursue its expansion in the rest of Asia, where domestic demand is stronger,” said Mitsushige Akino, who oversees about $450 million at Tokyo-based Ichiyoshi Investment Management Co. “Kirin needs to strengthen its foundations through acquisitions.”

Kirin shares slumped 7.4 percent, the most since October 2008, to close at 1,337 yen on the Tokyo Stock Exchange. The benchmark Topix index fell 1 percent.

Merger Ratio

Suntory wanted about 0.9 percent of a share for each Kirin share in the proposed new holding company formed after the merger, a Suntory executive, who declined to provide his name, told reporters in Tokyo today. That would have valued closely held Suntory at 892 billion yen ($10 billion) based on Kirin’s closing price last week.

“It would have been difficult to create a new company as there were differences in opinions, including the merger ratio,” Suntory said in a faxed statement.

Uniting the century-old beverage makers would have created a company with sales of $42.7 billion, surpassing Coca-Cola Co.’s $31.9 billion and placing it behind Nestle SA, Unilever PLC, Kraft Foods Inc. and PepsiCo Inc.

“The merger would have created a company that can compete globally as the domestic market is bogged down with a low birthrate and aging population,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. in Tokyo.

Kirin won’t pay any termination fee after ending talks, Kato told reporters in Tokyo.

Japanese food and beverage makers have been expanding overseas to reduce their reliance on a population that’s forecast to shrink 10 percent by 2030.

Overseas Push

Kirin last year agreed to pay A$3.5 billion ($3 billion) to take full ownership of Lion Nathan Ltd., Australia’s second- largest brewer. It also bought almost half of San Miguel Brewery Inc., partly funded by the sale of its holding in the Philippine brewer’s parent San Miguel Corp.

Suntory purchased European drinkmaker Orangina Schweppes from Blackstone Group LP and Lion Capital LLP in November for an undisclosed sum, and Groupe Danone SA’s Australia and New Zealand drinks business Frucor for more than 600 million euros ($819 million) in 2008.

Kirin’s domestic beer sales dropped 0.9 percent by volume last year and Japan soft-drink sales plunged 7 percent.

The brewer of Ichiban Shibori and Kirin Lager overtook Asahi Breweries Ltd. last year in Japanese beer sales for the first time in nine years.

Suntory sells Brand’s health food and is the Japanese partner of Haagen-Dazs ice cream.

President Nobutada Saji and members of the founding family own about 89 percent of Suntory. Saji’s grandfather, Shinjiro Torii, started the company in 1899 and began building Japan’s first whiskey distillery in Osaka prefecture in 1923.

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