Some deals are already in the bag, with Kirin Holdings recently snapping up a stake in 127-year old Singapore-listed Fraser & Neave (F&N) and Asahi’s US$322 million (RM1.03 billion) purchase of Australian fruit juice maker P&N, to combine with its Schweppes drinks unit.
More mergers and strategic tie-ups are brewing, with global players expected to eye alliances with companies such as Unilever Indonesia and Malaysia’s Mamee-Double Decker, maker of the popular Mamee noodles.
“There are lots of compelling reasons to expand in Southeast Asia,” says Chris Wong, Senior Investment Manager at Aberdeen Asset Management in Singapore.
“China is not an easy market to navigate; whether with regulation or distribution networks. India is a closed market,” Wong said referring to strict rules in India on foreign firms operating there.
The soft drinks market in the Asean (Association of South East Asian Nations) region, which includes Singapore, Malaysia, Vietnam, Thailand and the Philippines, is expected to grow by more than 40 per cent in the next five years to US$17 billion by 2014, according to market research firm Euromonitor International.
While the Chinese and Indian markets are forecast to grow by more than 70 per cent each by 2014, Southeast Asia’s beverage market is viewed as less risky with potential of its own, thanks to a growing class of wealthy and brand-conscious consumers that compares with saturated markets in the west and Japan.
Coca-Cola, the world’s No. 1 soft drinks firm, cancelled plans last year to buy China’s Huiyuan Juice after the deal was blocked on anti-trust grounds, encouraging drinks companies to look at other parts of Asia for investment.
“Now is not the time to increase investments or expand (into China); rather the focus is Southeast Asia,” Senji Miyake, president of Japan’s No. 1 brewer, Kirin Holdings, said at news conference last month.
Analysts expect global drinks firms to seek more mergers or tie-ups with local companies which have strong brands and distribution networks.
“While it is hard to pinpoint the right candidate, generally those local companies with strong brands and unique distribution and material sourcing strength could be attractive,” said Euromonitor Senior Beverages Analyst Hope Lee.
Kirin bought its stake in Fraser & Neave for US$953 million to bolster its soft drinks and dairy products businesses in Southeast Asia.
Asahi Breweries President Naoki Izumiya has said the firm would have US$9.5 billion on tap for acquisitions over the next five years, with a focus on Asia and Oceania. Last week it bought Australian juice maker P&N.
Malaysia’s CI Holdings, which owns the licence to manufacture Pepsi, may also look to expand, say analysts.
“CI Holdings, F&N, Mamee are some of the bigger boys looking for well-run companies in the small cap space, but there aren’t many and those that sell demand high prices,” said Khair Mirza, senior analyst at Maybank Investment Bank in Kuala Lumpur.
Coca-Cola’s bottling and distribution arrangement with F&N Holdings Bhd, meanwhile, expires next year. It is setting up its own plant in Malaysia, but there has so far been no sign of any local tie-ups.
Beyond Southeast Asia, Australia, with a beer market that offers some of the highest profit margins in the brewing world, is also on the radar screens of global drinks firms, with Foster’s beer unit at the centre of takeover talk.
Analysts say Australian food manufacturer Goodman Fielder could be a possible target for an Asian drinks predator.
“The advantage of that is Goodman Fielder would have fairly good ties into Australian grain buying which might help foreign buyers who would want that sort of a relationship with wheat sellers,” said Daniel Nelson, investment analyst at Constellation Capital Management in Sydney.
Japanese drinks firms have an added incentive in that a strong currency lowers the price of targets in yen terms.
Kirin, which owns a 48 per cent stake in Philippine brewer San Miguel had described its business in Southeast Asia as “weak”. Analysts say the F&N move shows Kirin is now on the offensive after dropping a largely defensive attempt to merge with Japan rival Suntory earlier in 2010.
Merger talk may be one reason why food and beverage stocks are held at a premium; investors are paying 24.4 times for the earnings of such shares in emerging Asia-Pacific versus a price multiple of 17.9 in all sectors, Thomson Reuters data shows.
Exposure to a consumption story that is helping Malaysia’s beer market grow at an annual rate of 4-5 per cent, compared with 0-1 per cent in the US beer market, is another reason. Vietnam’s beer market is growing by around five per cent a year, according to CLSA.
“Whether it’s beer or food, the trend is the same. Everyone wants a bit of the emerging market story,” said Wong. — Reuters