Kirin Deal Shows ‘Only Chance’ to Take Advantage of Yen

Kirin Holdings Co.’s purchase of a stake in Brazil’s second-largest beermaker took Japan’s overseas acquisitions this year to at least $46 billion as a stronger yen boosts domestic companies’ buying power abroad.

This year has been the busiest in terms of cross-border purchases involving Japanese companies since 2008, according to data compiled by Bloomberg. The total announced or completed since Jan. 1 almost equals that for similar deals in 2010 and 2009 combined, the data show.

Takeda Pharmaceutical Co. and Toshiba Corp. (6502) are among companies making acquisitions abroad, as the yen climbs against the dollar, having strengthened to a postwar record of 76.25 yen in March. Kirin made its third-biggest purchase yesterday to gain a foothold in Latin America’s biggest beer market as a declining and aging population hurts domestic demand.

“Now is the only chance to take advantage of the strong yen,” Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo-based hedge fund advisory firm, said by phone yesterday. “Japanese companies, especially for companies that rely more on domestic demand, must go outside if they want to boost profits, as little growth is expected in their home market.”

U.K., Sudan

The Japanese currency has gained 11 percent over the past year and traded at 77.16 to the dollar as of 3:22 p.m. in Tokyo, from 77.15 yesterday.

Kirin slid 4.9 percent, the most since March 17, to 1,092 yen at the 3 p.m. close in Tokyo trading. Minority holders in Schincariol Participacoes e Representacoes SA said the Japanese brewer’s stake purchase violates a shareholder agreement.

Takeda’s announced plan to buy closely held Nycomed for 6.3 billion euros ($8.9 billion) is the biggest deal this year, according to data compiled by Bloomberg. Nycomed will bring operations in China, India and Latin America to reduce Takeda’s reliance on sales in Japan and the U.S.

Sony Corp. (6758) and five bidding partners bought Nortel Networks Corp.’s remaining patents for $4.5 billion in a deal completed last month.

Trading company Itochu Corp. (8001) last month completed its purchase of the U.K. tire retailer Kwik-Fit Group Ltd. for 637 million pounds ($1.04 billion).

Cigarettes in Sudan

Japan Tobacco Inc. (2914) plans to boost overseas profit by at least 10 percent as it said domestic cigarette sales by volume have plunged since October, when the tobacco tax was raised by a record 40 percent. The world’s third-largest publicly traded cigarette maker agreed on July 29 to pay $450 million for Haggar Cigarette & Tobacco Factory Ltd., which operates in Sudan and oil-rich South Sudan.

Japan Tobacco has gained 13 percent this year, compared with an 8 percent drop for the broader Topix index.

“The domestic market is saturated and has a little room to grow,” said Mitsuo Shimizu, an analyst at Cosmo Securities Co. in Tokyo.

The country’s gross domestic product, which contracted in the three months through March, may shrink at a 2.97 percent annual pace in the second quarter before returning to growth, according to the average forecast of 43 economists in a survey by the government-affiliated Economic Planning Association released in June.

Brazilian Brewer

The yen’s climb is threatening profits of exporters, including Sony and Toyota Motor Corp. (7203) Finance Minister Yoshihiko Noda said yesterday it’s overvalued.

The strengthening past 80 yen to the dollar is slowing the nation’s economic recovery, Toyota President Akio Toyoda said July 19.

The yen’s gains cut first-quarter operating profit at Japan’s biggest automaker by 50 billion yen ($648 million), Toyota said yesterday. A 15-yen change in the exchange rate over the past year has “blown off” 300,000 yen, or $3,900, in profit on a $20,000 car, said Senior Managing Officer Takahiko Ijichi.

Sony, Japan’s largest exporter of consumer electronics, cut sales projections in part because of the yen’s advance.

Kirin, Japan’s second-largest brewer, yesterday paid 3.95 billion reais ($2.5 billion) to gain a majority stake in Schincariol, Brazil’s second-largest brewer and producer of Devassa Bem Loura and Nova Schin.

Tropicana, Volvic

The Tokyo-based maker of Kirin Lager, which also sells Tropicana Juice and Volvic mineral water, has spent more than $12 billion on overseas acquisitions in the past five years. Yesterday’s deal is Kirin’s biggest purchase after Lion Nathan and Australian milk and juice producer National Foods, according to data compiled by Bloomberg.

“Investing abroad is the most rational way for Japanese food companies to use their cash,” said Koichi Ogawa, portfolio manager at Daiwa SB Investments Ltd. in Tokyo. “Beer demand is poised to grow in Brazil.”

Kirin bought all of Australia’s second-largest beermaker in 2009 and owns almost half of San Miguel Brewery Inc. (SMB), which produces about 90 percent of the beer consumed in the Philippines.

Japan’s beer sales last year fell 2.8 percent to 459 million cases, the lowest level since records began in 1992.

Asahi, Toshiba

Asahi Group Holdings Ltd., Japan’s biggest beermaker by sales volume, last month agreed to buy Permanis, PepsiCo Inc.’s Malaysia bottler. The beermaker also offered NZ$129 million ($111 million) for Charlie’s Group Ltd. (CHA), a New Zealand-based fruit juice producer.

Asahi, which said in February it may spend 400 billion yen on acquisitions by 2012, plans to complete the A$188 million ($202 million) purchase of P&N Beverages Australia Pty Ltd.’s water and juice divisions in September.

Toshiba, Japan’s biggest maker of nuclear reactors, joined government-backed fund Innovation Network Corp. of Japan last month to buy Landis+Gyr AG. The purchase gives Toshiba access to the Swiss electronic-metering company’s customers in 30 markets as countries including the U.S. upgrade electrical systems.

“Acquisitions by Japanese companies will continue, as long as the yen remains strong,” Myojo’s Kikuchi said.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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