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Asahi CEO Defends Spending $22 Billion Building a Beer Empire

Lisa Du and Grace Huang

(Bloomberg) -- The biggest dealmaker in Japan this year has one thing on his mind: beer, and then more beer -- more than $20 billion of it in the past four years.

Never mind that people around the globe are drinking less, with consumption expected to show little to no growth in the coming years, or that other brewers are trying to diversify out of the market. Asahi Group Holdings Ltd. Chief Executive Officer Akiyoshi Koji is doubling down on beer as a survival strategy.

“We are expanding with the goal of being No. 1 for the premium beer segment in every geographic area we’re doing business,” Koji, 67, said in an interview. “The world is our market.” The CEO’s other obsession is to make Super Dry, which debuted in the late 80s and helped turn Asahi into Japan’s top brewer, into a global beer brand.

While other big brewers are moving into high-growth regions such as China and Southeast Asia, or exploring potentially lucrative businesses like cannabis-related products, Asahi has been in acquisition mode for beer in all corners of the globe, most recently in Europe and Australia.

Koji has been the driving force behind more than $20 billion in acquisitions -- including his biggest-ever deal in July, the $11 billion purchase of Melbourne-based brewer Carlton & United Breweries -- in the past four years. The deals have almost doubled Asahi’s value and vaulted it into the top ranks of the world’s biggest beer makers in less than five years.

The buying spree has sparked skepticism from analysts. In two of its deals with Anheuser-Busch InBev NV -- central and eastern European assets in 2017 and Australian labels including Victoria Bitter earlier this year -- it paid about 15 times Ebitda, according to Bloomberg calculations. The median for nine brewery acquisitions announced worldwide in the past five years is only 10 times Ebitda.

Koji, who joined Asahi 44 years ago as a rank-and-file salaryman, often cites Heineken NV as the kind of global brewer Asahi aspires to be. But Heineken pushed into global markets decades ago, when appetite was growing for imported and exotic beers. Now, younger drinkers are choosing local craft brews and lower-calorie drinks, or even opting for cannabis-infused beverages for relaxation with no hangovers. That’s why Euromonitor predicts that beer consumption volume will grow only around 1.4% annually on average in the next five years.

“The vast majority of mature markets are reaching the limits of growth potential,” said Spiros Malandrakis, head of research for alcoholic drinks at Euromonitor. “I think the era of global mega brands that can maintain brand equity across long periods of time will die with the millennial generation.”

Koji says that the premium segment — higher-priced beers — still has room to grow compared with the broader industry. Consolidation is the only way to expand in a mature global beer industry, he argued, noting that what Asahi paid for Carlton & United “was not that expensive” given population growth on the continent.

One reason why Asahi has been able to snap up so many storied beer brands is the CEO’s willingness to make quick decisions. He’s also built up rapport with AB InBev chief Carlos Brito, who has been selling off assets to pay down debt.

Koji first asked to buy the Australian brands in a meeting earlier this year, but Brito didn’t commit at the time, as the Belgian brewer was preparing a mega-IPO of its Asian operations. When that plan fell apart in July, Koji spied an opening and immediately contacted Brito. After a weekend and a week of meetings and nightly calls, they finalized a deal that stunned markets, as well as AB InBev’s own bankers.

Despite the dramatic dealmaking, Koji remains fairly low-key. His meal of choice before important meetings is “shogayaki,” a pork-and-ginger stir fry found in cafeterias for less than $10. But his bold moves have raised eyebrows in Japan’s staid corporate world.

“Someone who’s making these very, very big decisions for acquisitions is certainly not standard for Japan Inc.,” said Christina Ahmadjian, a business professor at Hitotsubashi University who is an outside director on Asahi’s board.

Asahi took on a 1.2 trillion yen bridge loan and issued 200 billion yen worth of shares to pay for the suite of Australian brands. The Japanese brewer, which was already on the hook for about 1 trillion yen in interest-bearing debt, is hoping that cash from that newly-acquired business will help pay down liabilities.

The company is also facing pressure in its home market, where higher margins generates a steady cash flow it relies on. Rival Kirin Holdings Co. has been seeking to unseat the market leader by putting out inventive brews with a premium twist and offering craft beers. “The domestic business needs a fundamental rethink if they’re really going to deliver value,” said Euan McLeish, an analyst at Sanford C. Bernstein & Co.

Koji contends that Asahi can grow at home and abroad. Its focus in Japan is to improve profitability, rather than try to boost consumption in a country where a declining population translates into fewer drinkers.

He seems untroubled by the doubters and investors are so far rewarding his resolve. Asahi shares are up 27% this year, compared to a 12% gain in the TOPIX.

“He’s very stoic,” UBS Securities analyst Satsuki Kawasaki said. “He’s taken on the CEO position with the conviction that he will exit if he doesn’t produce results.”

To contact the reporters on this story: Lisa Du in Tokyo at ldu31@bloomberg.net;Grace Huang in Tokyo at xhuang66@bloomberg.net

To contact the editors responsible for this story: Rachel Chang at wchang98@bloomberg.net, Reed Stevenson

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