Kirin in $2.6bn deal for drugmaker

Kirin, the Japanese brewer, has announced a Y300bn ($2.6bn) deal to acquire control of the drugmaker Kyowa Hakko, as part of its push into the health sciences business.

The beer maker plans to merge Kyowa Hakko with its pharmaceuticals arm, Kirin Pharma. It is offering Y1,500 a share for an initial 28 per cent stake, to be followed by a share swap with Kirin Pharma that will lift the Japanese brewer’s interest in the combined company to 50.1 per cent.

The acquisition is the largest ever by a Japanese brewer, according to data from Thomson Financial.

Japan’s beer market is stagnant and brewers are looking for new sources of growth. Kirin, Asahi and other brewers shipped 363.5m cases of beer and low-malt beer substitutes in the first nine months of this year, down 1.3 per cent and the lowest total since industry-wide counting began in 1992.

An ageing population and the growing popularity of wine and spirits at the expense of beer have hurt the brewers’ mainstay business.

Kirin Pharma and Kyowa Hakko both specialise in the development and production of antibodies, the immune system proteins that help fight off bacteria, viruses and other infections.

They also produce antibiotics and medicines to fight cancer, kidney disease and allergies as well as immune system disorders.

Big Japanese drug companies had been courting both companies as possible acquisition targets, according to bankers involved in the deal. The union could force drugmakers such as Takeda to turn to overseas acquisitions to strengthen their biotechnology portfolios.

Kirin set a target of Y80bn in operating profits for the new company by 2011, compared with a total of Y42.6bn for the two businesses last year.

By sales, the new entity will rank roughly 10th among Japanese pharmaceuticals companies.

“Both companies could have stayed in business comfortably on our own, but there was a lack of speed and efficiency,” said Yuzuru Matsuda, the Kyowa Hakko president who was named chief executive of the new company, to be called Kyowa Hakko Kirin.

“By combining our strengths we want to create a world-class speciality pharmaceutical company with a foundation in biotechnology research,” Mr Matsuda said.

Kirin Pharma licenses much of its basic science from Amgen, the US biotech company, with which it operates a joint venture. The company’s small sales force has limited its capacity for growth, and the potential for improving its marketing and distribution is understood to be one motivation behind the deal.

Kyowa Hakko, meanwhile, will soon lose patent protection for several of its products, and joining forces with Kirin will fatten its pipeline of new drugs.

Kirin’s offer price represents a 25 per cent premium over Kyowa Hakko’s closing share price on Thursday. The stock jumped 17 per cent on Friday on media reports that a deal was imminent, giving it a market value of Y560bn. The shares slipped 1.7 per cent Monday to Y1,378.

JPMorgan advised Kirin and Merrill Lynch advised Kyowa Hakko.