The Deal: Suntory Seen Near $1.6B GSK Drinks Deal

LONDON ( The Deal) -- Suntory Holdings' recently listed Suntory Beverage & Food is widely reported to be close to buying the Ribena and Lucozade drinks brands put up for sale by the U.K.'s GlaxoSmithKline ( GSK) in April.

The purchase, for an estimated 1 billion pounds ($1.6 billion), would mark a major push into Britain for the Japanese company, which became a significant force in Europe with its acquisition of France's Orangina from Blackstone Group ( BX) and Lion Capital ( LCHL) in 2009 for 300 billion yen ($3.01 billion).

In June, Suntory Beverage raised 388 billion yen in an initial public offering, with proceeds earmarked for a planned 500 billion yen acquisition drive as it seeks to double sales to 2 trillion yen by 2020 through overseas expansion.

The blackcurrant-flavored Ribena and Lucozade, a glaring-orange glucose drink, occupy a similar place in Britons' cultural consciousness to Orangina soda for the French. Lucozade, traditionally used as a pick-me-up during illness, has recently been chasing the sports and exercise drinks market. Pharma giant GlaxoSmithKline's April decision to sell the brands was a long time in the making. The British company at the same time also hived off around 50 older, or "tail," drugs brands with 2012 revenue of about 3 billion pounds into a separate unit which could be sold.

Beyond expanding Suntory's global empire and distribution reach, the deal should also reassure those who worry that the voracious appetite among Japanese companies for outbound acquisitions is diminishing because of the yen's retreat from historic highs. Yet Japan's banks have been active acquirers this year, particularly in Southeast Asia, and, only on Thursday, Otsuka Pharmaceutical agreed to pay $886 million for Dublin, Calif.-based Astex Pharmaceuticals.

Dealogic figures show that Japanese companies struck 416 outbound deals in the year to Sept. 6, down from 513 in the year-earlier period. The value of Japanese outbound acquisitions in the year to date was $27.8 billion, down from $56.8 billion in the corresponding 2012 period, when the year started with several big-ticket transactions. The value of outbound deals by Japanese banks in 2013 to date more than doubled year-on-year to $7.6 billion, Dealogic figures show. Separate figures from law firm Allen & Overy LLP found that Japan was the No. 6 outbound acquirer in the first half.

Although the dollar has appreciated about 25% against the yen in the past 12 months, the U.S. currency struggles to command the symbolically important rate of 100 yen or more. Sullivan & Cromwell LLP's Keiji Hatano believes the main drivers of outbound Japanese dealmaking remain in place.

"The strong yen was helpful but it wasn't the primary driver of Japanese companies going outbound. There's a more fundamental issue, that Japan is an aging society and if you want growth you have to go elsewhere. That hasn't changed," he said.

The devastating earthquake and tsunami of March 2011 "also highlighted the risk of companies being concentrated on Japan," Hatano added.

He sees the fiscal and monetary stimuli of Japanese Prime Minister Shinzo Abe as helpful to dealmaking. "Abenomics was designed to change deflation into inflation. With deflation buying tomorrow is cheaper than buying today. With inflation, you'd better act now," he said.

A GlaxoSmithKline spokesman declined to comment on Friday beyond saying it was on track to meet its year-end deadline for completing the Ribena and Lucozade sale. Suntory representatives, who couldn't be reached, had earlier told news outlets that "nothing has been decided."

Ribena and Lucozade had sales last year of about 600 million pounds. GlaxoSmithKline's group revenue was 26.4 billion pounds.

Last year GlaxoSmithKline divested over-the-counter brands with revenue of more than 350 million pounds.

JPMorgan Chase & Co. and Greenhill & Co. International LLP have been handling the sale of Ribena and Lucozade. PAI Partners SAS as well as Blackstone teamed with Lion Capital had considered bids, as had Bain Capital LLC. Reports suggest the formal auction had not yet begun before Suntory emerged with a pre-emptive offer.

-- Written by Laura Board in London