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Kirin and Suntory break off merger negotiations

By Guy Montague-Jones , 09-Feb-2010

Plans to merge Kirin and Suntory and create a Japanese drinks powerhouse have fallen through as the companies fail to agree on terms.

A merger of the two Japanese companies would have created a company with combined annual sales of around $45bn. Such a company would have taken its place alongside the likes of PepsiCo at the top of the pile of big selling food and beverage groups.

But those ambitions have now been buried. Kirin and Suntory both released statements yesterday informing shareholders that merger negotiations have ended without a deal.

The Japanese drinks companies, which together have a broad stable of soft and alcoholic drinks, as well as other food and restaurant operations, blamed each other for the failed negotiations.

Disagreement

Suntory said the two companies had a different understanding of how the businesses should be combined. In particular, Suntory cited disagreement over the “integration ratio” that determines how ownership of the business should be split.

Meanwhile, Kirin, which is the larger of the two companies, said the ownership stance taken by Suntory would frustrate its ambitions to build a leading global company.

In a statement, the company said: “Kirin had been negotiating on the premise that the new entity would be managed as a listed company in order to ensure appropriate management independence and transparency.

“However, it became apparent that Suntory held a different view on this matter, and Kirin determined that even if negotiations were to continue, they were unlikely to result in the establishment of a company that would fulfill Kirin's aim of developing as a leading global company.”

Missed opportunity

Shares in Kirin fell sharply on the news that the merger had fallen through as analysts had predicted that a combined entity would be well-placed to rejuvenate the drinks sector and take advantage of foreign growth opportunities.

When rumours of a merger were circulating in the summer, JP Morgan analyst Naomi Takagi said: “If a merger is realized, that would give them the market share to take leadership in pricing and help their soft drinks businesses -- a chronic weak spot in an ultra-competitive market.”

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