Japan’s Suntory Holdings said Thursday it had completed a nearly $16 billion buyout of the firm behind Jim Beam bourbon, creating one of the world’s biggest high-end spirits makers and giving it a foothold in the major US liquor market.
But the debt-heavy deal did not impress Moody’s which downgraded its credit rating on Suntory and said it would take “several years” to bring its balance sheet back to a less-leveraged state.
Suntory acquired all outstanding shares of Beam Inc. for $13.8 billion, largely financed by bank loans, while it also took on about $2.0 billion of the US-based firm’s debt.
The combined company, with about 3,400 employees, will be called Beam Suntory Inc. with plans to merge Suntory Liquors’ spirits business by before the end of this year.
Combined sales of Beam Inc. and Suntory’s spirits business were $4.6 billion in 2013, according to a statement issued by Suntory.
The buyout, first announced in January, marks the latest foreign acquisition by family-owned Suntory and is part of a recurring trend for Japanese companies as they see their home market declining due to a shrinking population.
A strong yen in recent years also helped the propel the shopping spree as overseas deals were relatively cheaper for Japanese companies, although the pace has slowed as the yen sharply declined over the past year.
The Beam deal is the third-biggest overseas acquisition by a Japanese firm, after mobile carrier SoftBank’s $21.6 billion takeover of US-based Sprint Nextel last year and Japan Tobacco’s 2007 purchase of Britain’s Gallaher for almost $19 billion.
It also eclipses the value of previous Suntory acquisitions, including the $1.56 billion purchase of the Lucozade and Ribena soft drinks brands in September.
“The transaction creates a company with the strong number three position in the global premium spirits market,” Suntory said in a statement Thursday.
– ‘Greater diversification ‘ –
Beam markets a range of bourbons and internationally known whiskies, having evolved from a small family base in the US state of Kentucky.
Beam Suntory will be headquartered in Deerfield, Illinois and led by chairman and chief executive officer Matt Shattock, who has been chief executive of Beam since 2009.
“By combining the world leader in bourbon and Japan’s leading spirits company, we have created a stronger global business with an even better premium portfolio,” he said.
Suntory, one of Japan’s biggest brewers and non-alcoholic drinks makers, is widely known in the country for commercials featuring Hollywood movie stars including Tommy Lee Jones. Its eponymous whiskey played a starring role in the 2003 Bill Murray film “Lost in Translation”.
Company president Nobutada Saji last year told the leading Nikkei business daily that Suntory was eyeing a deal that would amount to a “once-in-a-lifetime gamble”.
Some analysts have warned that the merger will burden the Japanese drinks giant with heavy debt. Suntory is financing the deal partly through bank loans of nearly $8.0 billion and taking on about $2.0 billion in Beam’s debt.
“The high financial leverage from the acquisition drove the downgrade,” Moody’s said in a statement Thursday, lowering its rating two notches to a still investment grade Baa2 from A3.
“It will take the company several years to bring leverage down to a level more appropriate for a higher rating,” it added.
Moody’s did, however, credit the deal for boosting Suntory’s overseas presence and distribution network, “particularly in the US where it has not had a meaningful presence”.
“The greater diversification is credit positive,” Moody’s said.
“Beam also has very high margins. As a result, Suntory Holdings’ profitability will increase after incurring initial integration costs.”
Suntory — which scrapped plans to merge with bigger Japanese rival Kirin in 2010 — has formed a joint venture with Chinese brewer Tsingtao to expand its reach in China, the world’s biggest beer market.
It bought 51-percent stake in a unit of Indian food and drink maker Narang Group in 2012, while in 2009 Suntory bought Europe’s Orangina Schweppes Group for $3.3 billion.