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Suntory to focus for now on repaying Beam debts

Bloomberg

Closely held Suntory Holdings Ltd. said it will focus on repaying debts from its $16 billion buyout of Beam Inc. before seeking further acquisitions.

The Osaka-based whisky and beer maker plans to refinance part of its ¥800 billion bridge loans with ¥300 billion in subordinated loans, Chairman and President Nobutada Saji said Thursday in Tokyo.

The remaining ¥500 billion may be refinanced by borrowings from Japan’s mega-banks and by issuing corporate bonds domestically and overseas, he said.

Suntory, which completed its acquisition of Beam two weeks ago, is betting the U.S. bourbon maker will help it expand beyond its home market in Japan. Moody’s Investors Service cut Suntory’s credit rating to Baa2 from A3 on May 1, citing its “high” financial leverage.

“I still think the acquisition of Beam is expensive, even now, but it’s worth it from a long-term perspective,” Saji said. “We would first focus on repaying debt for the Beam deal, before seeking other merger and acquisition targets.”

The deal, which the company said will make it the world’s third-largest distiller of premium spirits, represents the biggest acquisition by a Japanese company since SoftBank Corp. bought control of Sprint Corp. for $21.6 billion in a deal announced in 2012.

Suntory, which got a quarter of its 2013 revenue from overseas, has acquired sales channels in countries where it had a relatively small presence, such as Brazil, India, Russia and the U.S. It will also benefit from better margins at Beam, where operating costs consumed 74 percent of sales in 2013, compared with 93.8 percent at Suntory, according to data compiled by Bloomberg.

Saji said Thursday merger and acquisition is “one option” to improve Suntory’s sales growth, but the company has no specific acquisition targets. The company is targeting ¥4 trillion of sales by 2020, including ¥1 trillion from spirits operations, he said.

The company expects sales this year to reach ¥2.5 trillion with 38 percent coming from overseas, Vice President Shigehiro Aoyama said.

Suntory, which makes Yamazaki whiskey and Premium Malt’s beer, began in 1899 as a wine store in Osaka. Nobutada Saji, 68, is a grandson of founder Shinjiro Torii and has held the president’s job since 2001.