Suntory Holdings' high-multiple acquisition of Beam Inc boosts the Japanese group's U.S. market share, but the U.S. bourbon maker's sales and distribution networks in Asia and other emerging markets may yet be the deal's trump card.
"We will go after (emerging markets) together," Shingo Torii, Suntory's senior executive vice president, told reporters at a media event in Osaka earlier this week.
"Creating new value for whisky was the aim (of the Beam acquisition). Of course people care about the financial side and how valuable it will be, but the value will come in 10 years. We have a clear goal," he said, adding Suntory expected increased cashflow over the next decade to ease the burden of borrowing as much as $14 billion to fund the acquisition.
Without obvious cost-saving synergies, the total $16 billion purchase price - at more than 20 times Beam's earnings before interest, tax, depreciation and amortisation - is among the most expensive in the industry. Some analysts say Suntory is paying too much just to access Beam's U.S. sales.
But, as Japan's thirst for spirits dries up in an ageing population and as younger generations are more health-conscious, Suntory's rationale is likely the explosive growth elsewhere in Asia Pacific - a region that is forecast to account for 61 percent of the global spirits market by 2017, up from 55 percent.
"The domestic alcohol and soft drinks markets are saturated, so they have no choice but to go abroad ... It's like the shrinking cigarette market, which forced Japan Tobacco to go to China, Russia and so on for growth," said Yoshiaki Yamaguchi, senior analyst at SMBC Friend Research Center in Tokyo.
More than 90 percent of Suntory's business is still in Japan, even as exports of its premium whiskies have soared over the past decade on the back of international awards. It has yet to make a significant dent in the fast-growing emerging markets where Beam is better known.
Suntory's push into markets such as China, Brazil and India will be helped by Beam's networks in countries where strict regulations and complex distribution systems can confound the new entrant. Suntory will also be able to piggyback on Beam's international brand recognition to introduce its own liquors.
"A lot of people won't know names like (Suntory's) Hakushu, Yamazaki and Hibiki, but there are probably lots of countries that know Jim Beam," said Yamaguchi.
Suntory already distributes Jim Beam in Japan, while Beam distributes Suntory's whiskies in Hong Kong and much of Southeast Asia. As it adds Beam's bourbons, Scotches and other liquors such as Sauza tequila and Courvoisier cognac to its portfolio, Suntory will become the third-biggest premium spirits company in the world.
