Kirin and Suntory in merger talks

Update: This merger was called off.

The first and the third biggest Japanese whisky makers are discussing a merger, according to the Asahi Shinbun newspaper.　(Correction: I think this was actually originally from Nikkei)

If the deal between Kirin and Suntory comes off, it will create one of the world's largest drinks companies and a dominant force in Japan's markets.

The combined sales of the two companies exceeded 40 billion dollars last year. The proposed new company would account for half of Japan's beer production and would further cement Suntory's domination of the whisky market.

Suntory, which owns the Yamazaki and Hakushu distilleries, already accounts for about 70 per cent of domestic whisky sales. Kirin is the third largest whisky maker, although it is far behind Nikka (owned by Asahi), which has about 20 per cent of the market.

The future of Kirin's Fuji Gotemba and Karuizawa distilleries would once again be thrown into doubt if the deal went ahead. Kirin acquired Karuizawa when it bought Mercian a couple of years ago and has since mothballed the respected distillery, although its products are still being marketed. The companies strategy appeared to be concentrating on the much larger volume Fuji Gotemba site.

If these distilleries ever got into the hands of Suntory's sophisticated whisky people, would the strategy be reconsidered? Would they just close down all of the Kirin operations, which are dwarfed by Suntory's own internationally famous distilleries? Or would the respect that the tiny Karuizawa distillery, in particular, has among whisky drinkers get more of a hearing with Suntory's management? (Naive, perhaps.) Closing down all of Kirin whisky would, of course, be closing down the idea of a diverse Japanese whisky industry and limiting it to four major distilleries owned by two companies.

It is unclear what the Japanese anti-monopoly authorities will have to say about the merger but it is as well to remember that one company controlling 50 per cent share of the beer market, for instance, would be nothing new in Japan. In the 1970s, Kirin had over 60 per cent of beer sales.

The reason for the proposed merger has little to do with such domestic concerns and certainly nothing to do with whisky. With the Japanese alcoholic and soft drinks markets all declining, these companies need heft and cash to expand into foreign markets. Both Suntory and Kirin have been buying stakes in companies in South East Asia, China, and Australia recently to try to reduce their reliance on Japan's increasingly unprofitable market.

Kirin's shares were surging on the news today. Suntory is a privately held company.