Tokyo, Feb 16 - The battle for Japanese beer maker Sapporo Holdings, which faces a takeover bid by U.S. hedge fund Steel Partners, got a shakeup on Friday with a newspaper reporting that Asahi Breweries Ltd. has proposed a business integration.
The Yomiuri report comes on the day that Sapporo, Japan's third-biggest brewer after Asahi and Kirin Brewery Co., sits down to decide whether to hang on to anti-takeover measures that could thwart Steel Partners. Sapporo also reports its 2006 results on Friday.
Both Sapporo and Asahi denied the Yomiuri report, which said Asahi late last year proposed a business alliance under which the brewers would work together in areas such as product delivery and soft drinks at first, before working towards a full integration.
Sapporo shares were flooded with buy orders in the afternoon at 891 yen, up 12.6 percent on the day, while the benchmark Nikkei share average was down 0.28 percent. Asahi shares briefly touched a nine-year high in the morning.
Steel Partners said on Thursday it was considering launching a tender offer for the maker of Black Label and Yebisu beer, two weeks after the fund proposed that Sapporo abolish its defences against hostile takeovers.
These defences enable the company to issue equity warrants if an undesirable bidder buys 20 percent of its stock. Steel Partners is already Sapporo's biggest shareholder, holding 18.64 percent of its outstanding shares as a group.
"Sapporo's defences are strong but they are not insurmountable," said Doug Scott, beverage analyst at KBC Securities.
Asked if a white knight might appear, he said: "It really depends on Sapporo's management. Any white knight would have to be convinced that it would be worth it."
Scott added that fourth-ranked brewer Suntory Ltd., other firms in the food sector, or even real estate developers could be possible white knights for Sapporo.
ATTRACTIVE REAL ESTATE ASSETS
A reunited Asahi and Sapporo, which used to be a single company in the early 20th century, would have a domestic beer market share of over 50 percent, ahead of Kirin, which narrowly lost out to Asahi in 2006 in the market-share battle.
Japanese beer makers have been hurt by sluggish beer sales, an ageing population and shifting consumer tastes. They have been keen to expand their non-core sectors such as food and soft drink businesses.
Asahi President Hitoshi Ogita has said his company would seek investment opportunities, but any investment would centre on food and health operations. He has also said Asahi aims to expand its main domestic alcohol business on its own.
Sapporo has struggled to boost its market share due to weak brands and marketing power.
Nevertheless, its real estate business is strong, benefiting from demand for office space and rising rents amid steady economic growth in Japan.
Sapporo's real estate division produced an operating profit of nearly 5 billion yen from January to September last year, dwarfing the 557 million profit in its alcohol business. The company also has beverage and restaurant operations.
Steel Partners is seeking Sapporo's management approval to raise its stake to 66.6 percent of the company's voting rights.
If it does that, the fund said it would launch a tender offer for around 825 yen per common share, representing a premium of 19.21 percent to the average closing price over the three-month period up to the day before the fund's proposal to management.
But that is only 4.3 percent higher than Sapporo's closing share price on Thursday, a level KBC's Scott said seems to almost invite a bid from a white knight.
Steel Partners has sought permission to carry out due diligence on Sapporo, but said if it did not get management's cooperation it was prepared to go ahead with a tender offer based on publicly available information.
The fund run by financier Warren Lichtenstein has launched three tender offer bids in Japan: One for noodle maker Myojo Foods Co. Ltd, one for woollen fabric dye-finisher Sotoh Co. Ltd. , and one for metal-working oil firm Yushiro Chemical Industry Co Ltd
None of these bids were successful, but Steel Partners has benefited each time from the stock price gains in its targets.