Kirin plans soft drink expansion but remains coy regarding Schweppes

Posted by Daniel Palmer on 6th August 2008

Speculation continues to mount that Japanese-based Kirin Holdings will make a play for the drinks unit of Cadbury Schweppes in Australia.

The Japanese beverage giant already has significant operations in Australia following last year’s $2b purchase of dairy company National Foods. They also have a 46% stake in Lion Nathan Australia and a purchase of Schweppes would mean they would be a major player in the dairy, beer and soft drink sectors.

Cadbury announced a review of their beverage operations in Australia last week with a demerger or sale on the cards given that Australia is now the only country where Cadbury’s drinks and confectionery units are not separate.

The rumours about a purchase by Kirin have gathered weight since their announcement of results on Monday and their forward-looking statement. “In the soft drink markets of Asia and Oceania, which have high latent growth potential, Kirin aims to leverage its skills in product development and technical manufacturing to accelerate the growth of its overseas soft drinks operations, while continuing to seek new investment opportunities,” a statement from Kirin read. “Consideration will mainly be given to soft drink and alcohol beverage businesses in Asia and Oceania that show strong synergy potential with existing core businesses in terms of either products or geographical region. Funding for this investment will be sourced from liquidizing available assets and interest-bearing debt.”

They are reportedly willing to spend about $3b to maintain growth rates, but there would be complications with a purchase of Schweppes in Australia. Firstly, National Foods (owned by Kirin) is making a joint bid for Australian dairy co-op Dairy Farmers, which is valued at about $900m, and, if they acquire Dairy Farmers, would they be willing to also make a play for Schweppes? If they purchased both Schweppes and Dairy Farmers then it would be expected that about half of their funds for international expansion would have been set aside for Australia – a hefty portion.

Despite Kirin’s outline of their blueprint for the future they have, to-date, remained coy on any potential purchase of Schweppes. “It’s difficult for us to comment on individual media reports,” Kazuyasu Kato, President of Kirin Holdings, said at a news conference.

Approval from the ACCC may prove a stumbling block due to their extensive interests in beverage in Australia although, without great exposure to soft drinks in Australia, they could be expected to gain approval.

Interest from Coca-Cola Amatil in Schweppes could also stand in the way of a potential Kirin acquisition. Terry Davis, CEO of Coca-Cola Amatil, has previously outlined his desire to purchase the Schweppes brand – almost a decade after their initial attempt to acquire Schweppes was quelled by the ACCC. Coca-Cola Amatil have suggested “the landscape for beverages has changed dramatically in the last ten years”, implying that they think the ACCC would strongly consider allowing a takeover. Coca-Cola Amatil and Schweppes are, however, still the leading two soft drink bottlers dictating that any offer will be scrutinised by the ACCC.

Cadbury indicated findings from their review into their Australian beverage operations will be announced in October but, contrary to some reports, they are not yet on the market.