The merger romance between Japan’s top beer maker Kirin and its would-be partner Suntory ended Monday, not exactly in tears, but with some recriminations.
While on one level the two companies seemed perfect for each other in terms of combining their relative expertise, their different business visions ultimately put paid to talk of an alliance of corporate bliss.
With the domestic market for beer and related drinks apparently satiated, both companies were looking to join hands to facilitate expansion in overseas markets amid realignment within the food and beverage sector that recently saw US giant Kraft takeover Britain’s Cadbury.
While Suntory is a distant third in the Japanese beer market with a 12 percent share compared with Kirin’s 38 percent, Suntory has almost double Kirin’s 10-11 percent share of the domestic soft drinks sector. A merger would therefore have drawn on each company’s strengths while helping to lower costs in crucial markets such as China.
Talks toward that end were confirmed in July 2009. However, as those negotiations progressed the two companies came to realize that they were far less compatible than they originally thought. The crucial difference being that Kirin Holdings is a relatively Westernized operation listed on the Tokyo Stock Exchange while Suntory is still very much a paternalistic family-owned business.
While both companies sought to create a new listed company, they valued themselves differently. Relative to sales or operating profits, Suntory is about two-thirds the size of Kirin, but the Kirin-Suntory merger ratio proposed by Kirin was 1:0.5. For its part Suntory was expecting a ratio of equal terms: a huge gap in perceptions. But there was more to it than that.
The key point for Kirin seemed to be to limit the stake of the Suntory founding families to less than the critical one-third ownership of the new company, so that they could not veto major decisions. Suntory, meanwhile, was expecting to have a least one-third of the new entity precisely so it could.
When Kirin President Kazuyasu Kato explained on Monday why Kirin had called off the talks, he spoke of the need for corporate transparency and for separating management and shareholders, the implication being that Suntory, as essentially a family-owned business, had issues with these aspects of becoming a listed company.
This apparent scapegoating was too much for Suntory President Nobutada Saji, who claimed at a press conference hastily organized the same day that ‘a listed company is unable to understand the positive aspects of the kind of privately-owned company we have in mind.’
Certainly, a listed company pressed by dividend-hungry shareholders would find it very difficult to pursue Suntory’s principle of dividing profits three ways, with respective thirds directed to customer service and cultural activities for the community. Nor would they be impressed by famous examples of Suntory’s proud determination to succeed in the long run such as the 45 years it took to make its beer operations profitable and the 20 years it spent researching the making of blue roses.
Nevertheless, before their verbal tit-for-tat on Monday, the two company presidents, who were contemporaries at Keio University, must presumably have agreed on most other aspects of their envisaged merger. Otherwise the length of time they spent overlooking the significance of their different corporate visions is difficult to understand.
Both companies will now have to come up with a Plan B for their future growth. And the need for action was underlined today with the announcement of a year-on-year 13 percent fall in domestic beer shipments in January--the lowest level recorded since data became available in 1992.