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ANALYST INSIGHT

Suntory UK focus after $6bn IPO could see it snaffle Barr Britvic: Analyst

By Ben Bouckley+

13-Dec-2012
Last updated on 13-Dec-2012 at 13:36 GMT

With rumors swirling that Japanese giant Suntory is considering a $6bn IPO next year, one analyst reasons that any desire to enter the UK market could see it target Barr Britvic Soft Drinks.

“Whilst unconfirmed at this stage, it is thought that proceeds could be used to fund international acquisitions,” wrote Damian McNeela from Panmure Gordon in a note yesterday.

Mulling over the rationale for such a UK move on Suntory’s part (if indeed it did launch shares onto the stock market in H2 2013) the analyst added that the company was already a Pepsi bottler (while Britvic bottles the brand in Great Britain), and also licenses citrus-based soft drink Orangina to AG Barr.

Japanese may fancy something stronger

McNeela added that Suntory already had a presence in Europe, but a limited UK presence, and “as such it is, in our view, reasonable to assume that Suntory may wish to enter the UK market”.

“If Suntory were to consider a move into the UK then we would expect its interest to fall on the enlarged Barr Britvic Soft Drinks Company (BBSD),” McNeela said.

Recent transaction multiples averaging circa. 10.5x EV/EBITDA* (given selected large soft drink deals since 2007) indicated a potential further upside of circa. 22% for the enlarged group, the analyst said, before stressing that any move by Suntory nonetheless retained a “high degree of uncertainty”.

Urging caution, McNeela said that it was now unclear what Suntory wished to achieve via acquisitions, and may prefer alcoholic- to soft drinks producers, and emerging market growth brands.

That Pepsi connection…

Speaking to BeverageDaily.com this morning, McNeela said he was not well-placed to comment on rumors that Suntory could instead team-up with Diageo in a blockbuster move for Beam Inc.

“However, should the UK be a market it wishes to enter then of the two possible targets in the UK, we believe that the enlarged BBSD company would be its preference rather than [UK soft drinks rival] Nichols,” he wrote in the note.

“Suntory is already the Pepsi Bottler for Japan and has recently entered into a joint venture with Pepsi in Vietnam,” McNeela said.

“As such, the acquisition of BBSD could provide a platform for further consolidation of Pepsi’s bottling operations.”

McNeela reminded investors that Suntory bought Orangina Schweppes in 2009 for ₤2.6bn ($4.19bn), and said the firm could also benefit from the global growth of brands such as (current Britvic star) Fruit Shoot if it did move for BBSD.

*Enterprise Value/Earnings Before Interest, Tax, Depreciation and Amortization.

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