Japan's leading drinks' companies in merger talks

On July 14^th, Kirin and Suntory, two of Japan’s leading drinks companies, announced merger discussions were taking place. If they were to merge, they would form one of the world’s largest beverage companies with global sales of around $41 billion. The merger would leave them of a similar size to PepsiCo and ahead of Coca-Cola.

Shares in Kirin soared by 7.8% upon this announcement, (Suntory is a privately owned company). The newly merged company would control 50% of the diminishing Japanese domestic beer market, but perhaps more importantly, would also be able to compete at a global level.

Saving money via the supply chain is critical in this highly competitive market and the two companies are already collaborating in reducing procurement costs. The single biggest expense in the beer manufacture is the cost of the aluminum cans. A merger could significantly reduce the cost of these, as well as in other raw materials, such as malt, allowing their pricing to become more competitive.

Not only does the merger have a significant impact on their competitiveness, but it also has repercussions across the whole of corporate Japan. It is highly unusual for two healthy businesses to merge in Japan. It normally only happens when a failing firm is bailed out by a large corporation, (for example, Panasonic taking over Sanyo). Indeed, a merger is seen as failure.

The Japanese culture means they are reluctant to close or sell-off redundant areas of the business, or if they do, it’s over a number of years. Kirin and Suntory overlap considerably, and as procurement and distribution are under the spotlight as areas to provide competitive advantage, it could well be this tradition is broken. It may mean the myriad of smaller, domestic Japanese companies are released from their cultural shackles, allowing them to compete at a global level.

However, the merger is by no means a done deal. The potential domestic market share mean the Japanese anti-trust regulators will be very interested, and may yet prove too big a hurdle to cross.

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