May 9, 2012

Asahi to acquire Calpis for US$1.5 billion

As agreed on Tuesday (May 8), Asahi will buy Calpis, milk beverage producer from the food and condiment group Ajinomoto, for JPY120 billion (US$1.5 billion).

The deal for Calpis is the latest in a string of domestic and foreign acquisitions by Asahi, which is seeking to expand into new segments and regions in an attempt to hedge against the downturn in the Japanese beer market.

Like other Japanese brewers, including Kirin, Orion, Sapporo and Suntory, Asahi is dealing with the challenges of an aging and shrinking population at home, which has led to declining beer sales in Japan. Domestic shipments of beer have fallen each year for at least the last six years, and declined 3.7% last year to about 442 million cases, according data from the Brewers Association of Japan.

The deal, which is expected to close the deal by October, will help make Asahi one of the top players in the domestic soft drink segment, the company said in a statement. In the first three months of the year, soft drinks accounted for 22% of Asahi's JPY280 billion (US$3.5 billion) in sales, but the segment recorded an operating loss of JPY1.46 billion (US$18 million).

The Calpis acquisition marks "a positive move toward industry realignment," Ritsuko Tsunoda, an analyst at JPMorgan Securities Japan, wrote in a research note last month after Asahi first announced it was negotiating a deal with Ajinomoto, which has held a majority stake in Calpis since 1990.

''Calpis generates relatively high margins already compared with the rest of the soft drink industry," Tsunoda added, "but whether its margins would widen further after the acquisition is uncertain.''

Calpis specialises in lactic acid drinks, including the popular fermented milk beverage from which the company takes its name. It booked net income of JPY3.6 billion (US$45 million) on sales of JPY107.4 billion (US$1.3 billion) in the fiscal year that ended in March.

According to Ajinomoto, the Calpis sale will reduce its consolidated net sales by JPY48 billion (US$602 million) in the year ending March 2013, "but the impact on operating income, ordinary income and net income will be immaterial."

In a statement announcing the deal, Asahi said: "By combining management resources of Asahi and Calpis, the two companies will be able to jointly seek further strengthening and expansion of both the domestic and overseas beverage businesses."