Asahi Breweries Denies Integration Plans with Sapporo

Japan's Asahi Breweries Friday denied a newspaper report saying it had proposed an integration with rival beer maker Sapporo Holdings, which faces a takeover attempt by hedge fund Steel Partners.

Sapporo shares were overwhelmed by buy orders a day after Steel Partners said it was considering launching a tender offer for Sapporo.

The bid price for shares in Sapporo, Japan's third-biggest brewery after Asahi and Kirin Brewery, is indicated at 891 yen.

The Yomiuri newspaper reported that Asahi late last year proposed a business alliance under which the two companies would work together in areas such as product delivery and soft drinks as a first step, then eventually work towards a full integration.

"There has been a report that we have proposed a business integration with Sapporo Holdings but there is no truth to this," Asahi said in a statement.

A re-marriage between Asahi and Sapporo, which used to be united in a single company in the early 20th century, would give them a domestic beer market share of over 50%, ahead of Kirin, which narrowly lost to Asahi in 2006 in the market share battle.

Japanese beer makers are faced with sluggish beer sales amid an aging population and the shift of consumers' tastes to other alcohol drinks, and they have been keen to expand non-core sectors such as food and soft drink businesses.

Asahi President Hitoshi Ogita has said the company would aggressively seek investment opportunities, but any investments would center on food and health operations.

Asahi, which produces Super Dry beer, intends to expand its main domestic alcohol business on its own. Sapporo, the maker of Black Label and Yebisu beer, has been struggling to boost its market share due to weak brands and marketing power.

But its real estate business is strong, benefiting from demand for office space and rising rents on the back of steady economic growth in Japan. Land prices in major cities have recovered for the first time in more than a decade, and building vacancy rates have declined.

The real estate division produced an operating profit of nearly 5 billion yen in the January-September period, against a 557 million profit in its alcohol operations.

Steel Partners is seeking approval from Sapporo's management to raise its stake to 66.6% of the company's voting rights. The fund is already Sapporo's biggest shareholder, having 18.64% of its outstanding shares as a group.

Sapporo has recently bolstered its defenses against hostile takeovers. It can issue equity warrants if an undesirable bidder buys 20% of the company's stock.

Steel Partners asked in January that these measures be abolished and said management should at least put them to a vote at a general shareholders' meeting set for March 29.

Sapporo is scheduled to decide whether to hang on to its anti-takeover measures when it reports 2006 earnings results on Friday.