Kirin in merger talks with Suntory – Comment
But first things first. What do you call Kirin and Suntory?
I’d say they are two highly diversified companies. Both companies have sprawling operations that have baffled market observers for a long time. Among Kirin’s roughly 400 subsidiaries are a bio-chemical firm, a property company, hotels, a tennis club, and even a flower company. It also boasts pharmaceutical businesses that account for 8 percent of sales and 17 percent of income.
Likewise, Suntory is stuffed with an IT-services firm, a chain of fitness clubs, silverware and jewellery shops, an advertising agency and a flower company of its own, observes The Economist.
How should these conglomerates compare with a focused company like AB-InBev?
In order to avoid comparing apples and pears, let’s focus on their beer business.
According to Germain Hansmaennel’s 2008 global brewers’ ranking, Japanese brewers only qualify as “also-rans”.
Take a look at their total global beer sales in 2008:
Asahi sold 23.1 million hl beer,
Kirin 22.7 million hl,
Suntory 7.6 million hl and
Sapporo 7.2 million hl.
Based on these volumes, Asahi ranked 11th, Kirin 12th, Suntory 35th and Sapporo 37th among the world’s major brewers.
Now compare that with Anheuser-Busch InBev’s 388 million hl of beer sales in 2008.
Need I say more?
Admittedly, beer volumes are not everything. Next take a look at the market capitalisation of major food and beverage companies, a metric which might do greater justice to Kirin’s and Suntory’s diversified businesses.
PepsiCo: USD 87 billion
AB-InBev: USD 60 billion
Nestlé: USD 156 billion
The Coca-Cola Company: USD 114 billion
SABMiller: USD 36 billion
Kirin: USD 14 billion
(Source: BRAUWELT research 5 August 2009)
Even among global consumer goods companies, Kirin’s and Suntory’s combined market capitalisation would be USD 18.7 billion only. That’s a fifth of PepsiCo’s market capitalisation, a third of AB-InBev’s and half of SABMiller’s.
Is that what in Japan they call “keeping up with the Joneses?” Hardly.
A Wall Street Journal commentator argued that the combined company’s low market capitalisation is the result of Kirin’s and Suntory’s more than poor profitability.
He wrote: “Suntory’s net profit margin was an awful 2.1 percent last year, and 2008 was cause for celebration at the brewery division – it turned profitable for the first time since it entered the segment in” ... 1963. Yes, it took the beer division four and half decades to turn a profit at the operating level. Kirin’s profitability was better but hardly the stuff to write home about – 2008 net profit margin came in at 3.5 percent, compare that with Carlsberg’s 4.4 percent, the 8 percent Anheuser-Busch InBev racked up and PepsiCo’s 11.9 percent.
To conclude, AB-InBev need not worry that they will be de-throned any time soon by a Japanese brewer.
The consolidation of the Japanese beer market – this is what the merger talks are about, basically – will be an internal affair, pursued by Japanese companies only. And if they measure their enterprise value by assets and sales rather than by profitability (as in the rest of the world) – well, that’s their decision. Good luck to them.
