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Japan's Kirin in $1.2 Billion San Miguel Deal


Kirin Holdings, one of Japan's largest brewers, has entered into an agreement with San Miguel Corporation (SMC) to purchase 43.2% of its domestic beer business, San Miguel Brewery (SMB). This is the second time in less than a month that a Japanese company is taking advantage of opportunities overseas to diversify away from its core domestic brewery business.

The total value of the stake is Ps58.93 billion ($1.2 billion), comprising approximately 6.6 billion San Miguel Brewery shares at Ps8.841 each. The deal is expected to close by the end of May. Kirin will also offer to buy additional San Miguel Brewery shares at the same price from other shareholders, but intends to hold no more than 49% of the Philippine brewer after the combined deal is completed. Following an initial public offering in April last year, 5% of San Miguel Brewery is held by minority investors, while the rest is still owned by San Miguel Corp.

There will also be a six-month exclusivity period for Kirin to negotiate with San Miguel Corp and San Miguel Brewery with regard to the potential purchase of shares in San Miguel Corp's overseas beer businesses. Aside from its 95% market share of the Philippines' domestic beer market, San Miguel Corp also has a presence in China, Vietnam, Indonesia and Thailand. Kirin intends to use this as a springboard to expand its business across Asia.

San Miguel Brewery's shares closed 7.2% lower at Ps9 on Friday when the deal was announced, while Kirin shares in Tokyo were down 0.7%.

Kirin will partially fund the acquisition by selling its entire 19.9% stake in San Miguel Corp to investment management company Q-Tech Alliance Holdings for Ps39.6 billion ($820 million), or Ps63 per share.

The relationship between Kirin and San Miguel Corp stretches back to 2002, when Kirin bought an initial 15.5% of San Miguel's equity. Kirin is involved in the management of San Miguel Corp and views the relationship as long-term and strategic, as well as an important part of its continued overseas expansion. Japan's beer consumption is dropping as a result of an ageing population and pressure from wines and spirits. In Japan, Kirin's portfolio of interests now also includes soft drinks, pharmaceuticals, and food products.

This is the second example this year of a Japanese drinks company taking advantage of opportunities overseas. At the end of January, Asahi Breweries paid $667 million to acquire a 19.9% stake in China's Tsingtao Breweries from Anheuser-Busch InBev, which maintains a 7% stake.

Kirin was advised by Nomura, while San Miguel was advised by the Royal Bank of Scotland as lead advisor, and Standard Chartered as co-advisor.

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