Del Monte Pacific Seen as Target for Suntory: Real M&A

Suntory Beverage & Food Ltd.’s (2587) plan to spend more on takeovers than any Japanese soft-drinks rival over the past decade has made a target of Del Monte Pacific (DELM) Ltd.

Following Asia’s biggest initial public offering of 2013, the maker of Boss coffee and Orangina soda has said it will spend as much as $5 billion on deals to help double sales by 2020. Del Monte Pacific, the $893 million seller of fruit juices in the Philippines and India, would meet Suntory’s need for fast-growing, emerging market assets, said Malayan Banking Bhd. (MAY)

Del Monte Pacific “has a very attractive brand, so it does make sense,” James Koh, a Singapore-based analyst at Maybank, said in a phone interview. “These Japanese food and beverage companies have slow growth at home and very strong product expertise built up over many years.”

Suntory’s takeover budget surpasses spending by any Japanese acquirer of overseas non-alcoholic beverage companies since 2000, according to data compiled by Bloomberg. With the Tokyo-based company cutting reliance on its home market, Del Monte Pacific, based in Taguig City, Philippines, offers a distribution network across the country, Oversea-Chinese Banking Corp. said.

Photographer: Kiyoshi Ota/Bloomberg

A can of Suntory Beverage & Food Ltd.'s Boss brand coffee is arranged for a photograph in Soka City, Saitama Prefecture, Japan. Close

A can of Suntory Beverage & Food Ltd.'s Boss brand coffee is arranged for a photograph... Read More

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Photographer: Kiyoshi Ota/Bloomberg

A can of Suntory Beverage & Food Ltd.'s Boss brand coffee is arranged for a photograph in Soka City, Saitama Prefecture, Japan.

Del Monte Pacific today rose as much as 4.2 percent, and closed up 3 percent at 86.5 Singapore cents, its highest in more than a month. The shares have gained 69 percent in 2013.

Suntory, the soft-drinks subsidiary of Suntory Holdings Ltd., started trading this month after raising almost $4 billion in Japan’s largest IPO in almost a year. The company, which also owns the rights to Schweppes in Europe, said it plans to double sales to 2 trillion yen ($20 billion) and intends to spend as much as 500 billion yen on acquisitions.

Fast Decisions

“The IPO is an announcement that ‘we’re ready to buy,’” said Mikihiko Yamato, deputy head of research at Tokyo-based JI Asia. “If they show they have the money from the equity markets, the potential sellers or the advisers will be coming.”

Nobuhiro Torii, Suntory’s chief executive officer and president, said in a July 9 interview he’s hunting in both mature and emerging markets.

In developing nations, distribution is key, said Torii, great-grandson of Shinjiro Torii, who founded Suntory in 1899. As early as September, Suntory’s mergers-and-acquisitions team will begin discussing more than 100 targets with the board, he said.

“They could already be talking to the adviser companies,” Yamato said in a phone interview. “It’s a family-led company, which means for M&A, they’ve got a faster decision-making process.”

Philippines’ Growth

Ribena and Lucozade, blackcurrant and energy drinks brands put up for sale by GlaxoSmithKline Plc (GSK) in April and valued by analysts at $2.3 billion, might be among the targets, Yamato said.

“Lucozade and Ribena are a good fit,” Phil Carroll, an analyst at Shore Capital Stockbrokers Ltd. in Liverpool, England, said in an interview. “They’d be buying into established brands, so that takes part of the investment risk away.”

Profit at Suntory fell 21 percent last year to 23.4 billion yen, and more than two-thirds of its revenue came from Japan, according to data compiled by Bloomberg.

The Philippines, with Southeast Asia’s second-largest population after Indonesia, may be a focus for acquisitions, said Lim Siyi, a Singapore-based analyst at Oversea-Chinese Banking.

“Del Monte could provide them a good distribution network,” he said, referring to Suntory. “They’ll need local partners to penetrate these diverse markets.”

Definite Appeal

The Philippines is the largest market for Del Monte Pacific, which sell juices, canned pineapple and tomato ketchup. Net income at the company, which also sells food in Asia and the Middle East under the S&W brand, has almost tripled in three years to $32.1 million.

“We are considering acquisitions, but the company hasn’t decided on targets yet,” said Kana Kamitani, a spokeswoman for Suntory. Jennifer Luy, Singapore-based investor relations manager at Del Monte Pacific, declined to comment, as did Glaxo spokesman Simon Steel.

Should Suntory use all of its $5 billion allocation for takeovers, it will outspend any other Japanese acquirer of overseas non-alcoholic drinks companies, data compiled by Bloomberg show. Kirin Holdings Co. (2503) has spent about $4.5 billion on foreign non-alcoholic acquisitions, including dairy companies, the data show.

Huge Cashpile

Closely held Suntory Holdings, which still controls Suntory Beverage, bought France’s Orangina Schweppes Group in 2009. While the value of that deal was never disclosed, people with knowledge of the matter said it was about 2.6 billion euros, or about $3.9 billion at the time.

In October 2011, Suntory was in talks to buy bottled-water assets from Danone (BN), owner of the Evian and Volvic brands, people familiar with the matter said at the time. No deal was ever reached.

A purchase of Del Monte Pacific would require Suntory to persuade the controlling shareholder, NutriAsia Pacific Ltd., to part with the company. A representative for NutriAsia said in an e-mail that any talk of a sale was speculation and declined to comment.

Suntory risks shareholder scrutiny if it fails to reach its acquisition goals, said Mariko Semetko, a credit analyst at Moody’s Corp. in Tokyo.

“They’re sitting on a huge pile of cash,” she said in a phone interview. “Developed markets are saturated and if you want growth, it is natural to seek growth overseas. From a diversification standpoint, it makes sense.”

To contact the reporters on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net; Nick Gentle at ngentle2@bloomberg.net

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