Japanese drinks giant Kirin Holdings Co Ltd has agreed a $1.2 billion (€1.1 billion) buyout of Australian vitamin maker Blackmores Ltd, furthering a diversification push while offering the struggling target's shareholders a neat exit.
The deal makes good on a plan by Kirin to broaden its business beyond alcoholic drinks as a growing interest in health raises expectations of tougher regulation.
It also throws a lifeline to Blackmores shareholders after years of soft returns. The company grew from Australia's first health food store nearly a century ago into a national success story as it capitalised on Chinese appetite for imported health supplements.
But COVID-19 containment ended the "daigou" boom, where Chinese consumers bought goods abroad to carry home, and the firm has been struggling to recover sales since. Before the Kirin deal, Blackmores shares traded at one-third their value in 2016, the height of the daigou craze.
"When you've spent 57 years at a business, you don't want to see the business suffer, and you want to see the business successful," said former chairman Marcus Blackmore, son of the firm's founder and its top shareholder with 19%.
"I have no doubt in my mind that Kirin will deliver on that promise to me," added Blackmore, 78, in a phone interview.
Kirin, which makes about half its sales from alcoholic drinks, including top Australian beer brands like Tooheys, said it would benefit by joining a pharmaceuticals unit based in Japan with an already large Australian footprint.
"In the health sciences area, Kirin is strong in Japan while Blackmores has a strong presence in Australia, China, and Southeast Asia," Kirin senior executive officer Takeshi Minakata told a Tokyo news conference.
"The combination of the two companies will enable us to supplement each other's coverage in areas that have not been covered so far.
The news pushed Blackmores shares up 23% to A$94.26, their biggest single-day gain, and just short of Kirin's A$95 purchase price as investors considered the deal final while allowing for dividends that might be paid, which would be subtracted from it.
"Higher interloping bids are possible, but we think the odds are low given our A$80 stand-alone assessment of Blackmores' intrinsic value," said Morningstar analyst Shane Ponraj in a client note.
Kirin shares fell as much as 3% as analysts wondered if it overpaid.
"The deal just looked a bit expensive and Japan generally takes M&A negatively. A little surprised it isn't down more." said Mio Kato, founder of LightStream Research, who publishes on the SmartKarma platform.
The deal comes amid an M&A spree in Australia that market watchers expect to continue in the near term. The country has been a popular destination for Japanese firms looking for growth beyond their stagnant domestic economy.
Kirin and Asahi Group Holdings Ltd dominate the Australian beer market, while Nippon Paint Holdings Co Ltd bought Australia's biggest paint maker DuluxGroup Ltd for A$3.8 billion 2019. A year earlier, Mitsubishi UFJ Financial Group Inc paid A$4.1 billion for Commonwealth Bank of Australia's global asset management unit.
Although Blackmores said it backed the deal, Blackmores shareholders will vote on it in July and the companies expect the transaction to close in August. Barrenjoey Capital Partners and Adara Partners are acting as joint financial advisers.