By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) -- Shares of Japan's Kirin Holdings Co. extended gains Tuesday on hopes the company's possible merger with Suntory Holdings could create a Japanese beverage giant.
Kirin /zigman2/quotes/200156106/delayed KNBWY -1.34% /zigman2/quotes/201605850/delayed JP:2503 -1.52% shares climbed 1.9% in Tokyo afternoon trade, on top of their 7.8% surge Monday. The advance came after Kirin confirmed media reports that it was in initial talks with Suntory for a merger, although it said "nothing has been resolved or reached an agreement at this stage."
Separately, Suntory's president Nobutada Saji said the closely-held company will aim to conclude a business integration agreement with Kirin "at the end of this year or after the turn of the year," according to Nikkei newspaper report published Tuesday.
"We think this could be an excellent combination not only for its potentially positive effect on the two companies concerned but also on the Japanese brewing and soft drinks industry as a whole," J.P. Morgan analyst Naomi Takagi wrote in a report.
"Suntory dominates Kirin in terms of both market standing and earnings in the beverage market, where Kirin is keen to improve earnings. This could give Suntory the upper hand in merger talks. Also, Kirin runs the risk of paying too high a premium for Suntory's founding family-run business," Takagi added.
Among Kirin's listed rivals, shares of Asahi Breweries /zigman2/quotes/206211507/delayed JP:2502 +0.14% /zigman2/quotes/206908476/delayed ASBRY -30.77% gained 1.2% and Sapporo Holdings /zigman2/quotes/200413497/delayed JP:2501 -6.25% advanced 1.9%.
Morgan Stanley analyst Taizo Demura said there was potential for synergy on multiple fronts if the integration materializes. The brokerage listed economies of scale in beer-related and cold drinks businesses, room for cost reduction in ad and sales promotion and overseas business expansion as areas where a tie-up would be beneficial.
Still, Demura noted that "antitrust issues in the beer and wine businesses could present an impediment" to a merger.
Suntory and Kirin together had a 49.6% share in the Japanese beer market in 2008, according to a Nikkei report.