In its thirst for foreign markets, Japanese brewer Kirin recently purchased a controlling share in Brazil’s second-largest beer producer. But not only did Kirin “overpay,” it also stepped unwittingly into the middle of a long-simmering family feud.
SAO PAULO – With a population of just 157,000 inhabitants, Itu is a relatively small city. And yet it's best known in Brazil for some very large things: it has a famous oversized telephone booth, an enormous stoplight and stores that sell disproportionately big key-rings and pencils. The city located in the center of the state of Sao Paulo, is also home to a gigantic family dispute – one that encapsulates many of Latin America's corporate governance problems.
Last August, Itu's Gilberto, Daniela and José Augusto Schincariol filed a lawsuit against their cousins, Adriano and Alexandre Schincariol. Not long before, the defendants in the case sold their investment company, Aleadri-Schinni, to the Japanese beverage firm Kirin for $2.57 billion. Aleadri-Schinni controls 50.45% of the shares of Schincariol, Brazil's second-largest beer producer. The other 49.55% belongs to an investment firm called Jagandil, owned by Gilberto, Daniela and José Augusto. The plaintiffs insist they have a right of first refusal for their cousins' stocks. The judge has accepted the suit and temporarily suspended the sale to Kirin.
This is the latest chapter in an unfolding family drama that first begin in 2003 when Nelson Schincariol, grandson of the giant beer company's founder, was mysteriously murdered in his Itu home. Since then, Schincariol has been fraught by disagreement between Nelson's heirs and those of his brother, Gilberto.
The sale to Kirin surprised a lot of Brazilians. The public was aware that Adriano Schincariol was talking to the British companies SABMiller and Diageo, and to Danish companies Carlsberg and Heineken. Many observers assumed that Heineken would end up with the company.
A costly foot in the door
According to Brazilian analysts, the Japanese company paid a surprisingly high amount for the company – about 17 times Schincariol's gross annual earnings. A "normal" sale price would have been about 10 times annual earnings. The price was especially high considering Schincariol – under the brands Schin, Devassa and Badem – controls just 11% of Brazil's beer market.
Whether it overpaid or not, Kirin – assuming the court injunction is eventually lifted – will have a solid foot in the door of Brazil's $9 billion beer market. With this acquisition, the Japanese company is also able to avoid costly investments in distribution networks, infrastructure and brand creation. "It's a rare opportunity to buy an influential company," said Senji Myake, the Japanese multinational's CEO, speaking in Tokyo at the press conference that announced the sale.
International expansion is key for the company's future success given problems in Japan's domestic beer market, which has been stagnant. Last years overall sales even fell – by 3.5%, according to data from the consulting firm Dealogic. Since 2005, Kirin has invested $12 billion in acquisitions. Foreign brewers, now under the Kirin umbrella, include Hangzhou Qiandaou, a Chinese company; the Filipino firm San Miguel; and Australia's Lions Nathan. Bloomberg reports that Kirin earned 23% of its revenue last year from foreign subsidiaries, up from 14% in 2005.
Ensuring a return on its investment in Brazil, however, may prove to be easier said than done. Schincariol has had a turbulent recent history with significant commercial ups and downs. That's not to mention the company's still brewing family feud.
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Photo - BemDevassa