There is a lazy logic to Kirin’s decision to buy Brazilian brewer Schincariol. Kirin gets more than 40 per cent of its revenue from selling alcohol (mostly beer) in Japan. It needs to diversify from its ageing home country, where beer shipments have been falling for more than a decade. Brazil is the world’s third biggest beer market; sales have grown at a compound annual rate of 12 per cent over the past five years. Who can blame Kirin for paying a handsome price for the chance to sup at Brazil’s fountain of eternal commercial youth? Especially when the yen is so strong?
On closer inspection, the logic looks flimsier. Up to now, Kirin has focused all its non-Japanese ambitions on the Asia Pacific region. It has no other significant assets in Latin America and has not suggested this could be the first of several moves in the region. There will be no substantial synergies. As for the yen, it has indeed strengthened against many currencies but has overall been fairly flat (though volatile) against the booming Brazilian real for the best part of two years.
Schincariol does not compare well with Ambev, its main competitor in Brazil. Ambev’s 70 per cent market share dwarfs Schincariol’s 15 per cent. Ambev, controlled by Anheuser-Busch InBev, had an operating profit margin of 40 per cent in 2010; Schincariol made do with 4 per cent. Ambev trades at about 10 times last year’s earnings before interest, tax, depreciation and amortisation. Yet Kirin’s R4bn deal valued Schincariol at about 16 times trailing ebitda, a high multiple even by the standard of emerging market beer deals.
Japanese companies such as Kirin may be smart to buy foreign companies while borrowing costs are low and the yen is high, but that does not mean they should write blank cheques.
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