Tokyo, Feb 16 - The battle for Japanese beer maker Sapporo Holdings, which faces a takeover bid by U.S. hedge fund Steel Partners, fizzed on Friday with newspapers reporting that bigger rivals Asahi Breweries Ltd. or Kirin Brewery may integrate Sapporo.
The Yomiuri daily said Asahi had proposed an alliance under which the brewers would work together in areas such as product delivery and soft drinks as a step towards full integration.
The Asahi newspaper evening edition said financial institutions are suggesting Sapporo tie up with Asahi or Kirin.
The companies denied the reports, which followed Steel Partners' announcement on Thursday that it may launch a tender offer to take control of Sapporo, Japan's third-biggest brewer after Asahi and Kirin.
"There have not been similar proposals (besides Steel Partners) at this time," Sapporo Director Yoshiyuki Mochida told a news conference. "If we receive any proposals from now on, we would consider them."
Sapporo shares were flooded with buy orders for the entire session before finishing up 12.6 percent at 891 yen. Asahi closed up 1.6 percent after hitting a 9-year high during the day, while Kirin gained 4 percent on chances for industry consolidation.
After Steel Partners proposed Sapporo abolish its defence against hostile takeovers last month, the maker of Black Label and Yebisu beer said on Friday it would seek shareholders' approval for modified measures in March but added it would use the current scheme to deal with any Steel Partners' advance.
Sapporo's present defence allows it to issue equity warrants if an undesirable bidder buys 20 percent of its stock. The fund is already its biggest shareholder with an 18.64 percent stake.
"Sapporo's defences are strong but they are not insurmountable," said Doug Scott, a beverage analyst at KBC Securities, adding that fourth-ranked brewer Suntory Ltd., other firms in the food sector, or even real estate developers could emerge as white knights for Sapporo.
"It really depends on Sapporo's management. Any white knight would have to be convinced that it would be worth it," he said.
Japanese beer makers have been hurt by sluggish beer sales, an ageing population and shifting consumer tastes.
Sapporo bought Canadian beer maker Sleeman Breweries Ltd. last year, but it is still small compared with Asahi and Kirin, both of which have been using acquisitions to build scale in Japan and abroad.
Sapporo is not the only M&A story on tap in the beer industry. Shares in InBev hit a record high on Thursday after a Brazilian newspaper reported the Belgium-based brewer was in merger talks with Anheuser-Busch Cos. Inc.
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A reunited Asahi and Sapporo, which were 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 battle for market share.
Kirin and Sapporo together would also have a share of over 50 percent.
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.
Kirin has earmarked 300 billion yen ($2.5 billion) for strategic investments but is looking at overseas and non-core businesses because of a saturated domestic market.
Sapporo has struggled to boost its share of the beer market due to weak brands and marketing power. But its real estate business is strong, benefiting from robust demand for office space and rising rents amid steady economic growth in Japan.
Sapporo's real estate division produced the bulk of group operating profit in 2006. It also has beverage and restaurant operations.
Steel Partners is seeking approval from Sapporo's management to raise its stake to 66.6 percent of voting rights, which would cost about 150 billion yen at its offer price.
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. And that may be just what Steel Partners wants as it could serve as an easy way to cash out.
"It was the first time we had received (such an offer)," Sapporo's Mochida said. "We are still analysing and examining it with outside assistance, and we can't comment on anything yet."
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.
Sapporo is advised by Mizuho Securities.
The fund, run by financier Warren Lichtenstein, has launched three tender offer bids in Japan -- for noodle maker Myojo Foods Co. Ltd., woollen fabric dye-finisher Sotoh Co. Ltd., and metal-working oil firm Yushiro Chemical Industry Co. Ltd.
None of these bids were successful, but Steel Partners has benefited each time from share price gains in its targets.