(Updates with comment from investor in eighth paragraph.)
Nov. 4 (Bloomberg) -- Kirin Holdings Co. agreed to buy out shareholders in Brazilian beermaker Schincariol Participacoes e Representacoes, completing its biggest acquisition as it seeks growth in emerging markets.
Japan’s largest brewer will pay 2.35 billion reais ($1.35 billion) for the 49.54 percent stake, giving it control of all outstanding shares, the company said today in a statement. The deal settles a dispute with shareholders who had challenged the Tokyo-based beermaker’s acquisition of half of Schincariol earlier this year.
Kirin is paying about 2.2 times 2010 net revenue for the company, compared with the median of 1.3 times sales of 20 similar beverage deals announced or completed this year, according to data compiled by Bloomberg. The maker of Kirin Lager and Japanese rivals Asahi Group Holdings Ltd. and Suntory Ltd. are expanding in Brazil, Australia and New Zealand as domestic demand for beer slumped for a sixth straight year in 2010 and the yen reached a postwar high last month.
“The full takeover will give us more freedom to manage the company,” Kirin Executive Director Hirotake Kobayashi told reporters in Tokyo today. All of the family members will leave the company and Kirin plans to send executives to the Brazilian company’s board and as many as 10 additional employees to manage the company, he said.
Kirin rose 1.5 percent to 971 yen as of the 3 p.m. close in Tokyo trading, while the broader Topix index gained 1.8 percent. The beermaker has dropped 15 percent this year, compared with a 16 percent slide for the benchmark.
The Schincariol acquisition would be this year’s largest in the beer industry after SABMiller Plc’s announced $9.9 billion purchase of Australia’s Fosters Group Ltd.
Kirin intends to focus any further investment on improving existing businesses, especially those in Southeast Asia and Oceania, Kobayashi said. More large purchases would be “difficult” and the company has no plan to sell shares or to make acquisitions that require borrowing, he said.
“Entering emerging markets is a must for any Japanese company,” Yuuki Sakurai, president at Fukoku Capital Management Inc. in Tokyo, said today by telephone. “After the March 11 earthquake, there was definitely a trend in Japan to refrain from throwing parties and drinking and going out, which may have affected sales.”
Kirin’s purchase today values Schincariol at $3.62 billion, excluding debt, when combined with the purchase completed last month of a 50.45 percent stake in the closely held company at today’s currency exchange rates.
The Japanese brewer said it expects to accelerate growth at Schincariol by using Kirin’s technologies, product development, research and marketing. Net income at the Brazilian brewer has fallen to 54 million reais in 2010 from 152 million reais in 2006, according to Kirin’s statement today.
Kirin slashed its profit forecast for this fiscal year by almost half today, partly because of a decline in the value of securities.
Net income will probably be 27 billion yen ($346 million) this year, compared with the previous estimate of 52 billion yen, according to a statement from the company today. A decline in the value of securities will reduce net income by 18.7 billion yen this year, according to the statement.
Kirin also agreed today to assume 1.1 billion reais of debt and estimated 2.1 billion reais of potential labor, legal and tax liabilities as part of the deal, which puts an end to a court dispute with Schincariol investors Jose Augusto Schincariol, Daniela Schincariol and Gilberto Schincariol Junior.
As part of the deal, former controlling shareholders of Schincariol agreed to provide 800 million reais as a guarantee for the debt, the people said.
Kirin agreed in August to pay 3.95 billion reais for Aleadri-Schinni Participacoes e Representacoes SA, which owned 50.45 percent of Schincariol.
The Japanese brewer signed a bridge loan for about 100 billion yen from the Bank of Tokyo Mitsubishi UFJ Ltd. to finance the acquisition, Kobayashi said today. The company plans to refinance the borrowing by selling bonds and borrowing longer-term, he said.
Credit Rating Cut
The beermaker’s credit rating was cut last week by Moody’s Investors Service to A3 from A2. Purchase of the initial 50.45 percent Schincariol stake “has weakened Kirin’s credit profile because of the need for debt financing,” Moody’s said in a report. “The rating also incorporates increasing risk, given Kirin’s entry into Brazil, where it has limited expertise.”
Kirin dropped six days straight in Tokyo trading, declining 16 percent, beginning Aug. 2, the day the Schincariol acquisition was announced. Moody’s initiated its review of Kirin’s rating on the same day.
Kirin last month said it plans to sign 60 billion yen in loans to help pay for the acquisition, according to people familiar with the matter.
The Japanese brewer is seeking a 40 billion yen six-year U.S. dollar-denominated loan that will pay 35 basis points more than Libor, the people said, declining to be identified because the details are private. Kirin is also seeking a 20 billion yen 10-year syndicated loan that will pay 10 basis points over Libor, according to the people.
--With assistance from Cristiane Lucchesi and Helder Marinho in Sao Paulo, Mohammed Hadi in Hong Kong and Dave McCombs, Anna Mukai and Emi Urabe in Tokyo. Editors: Dave McCombs, Frank Longid
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