Kirin to buy Blackmores in $1.88 billion cash deal

Japanese drinks giant Kirin Holdings has agreed a $1.2 billion buyout of Australian vitamin maker Blackmores, furthering a diversification push while offering the struggling target’s shareholders a neat exit.

The deal makes good on a plan by Kirin to broaden its business beyond alcoholic drinks as a growing interest in health raises expectations of tougher regulation.

It also throws a lifeline to Blackmores shareholders after years of soft returns. The company grew from Australia’s first health food store nearly a century ago into a national success story as it capitalized on Chinese appetite for imported health supplements.

But COVID-19 containment ended the “daigou” boom, where Chinese consumers bought goods abroad to carry home, and the firm has been struggling to recover sales since. Before the Kirin deal, Blackmores shares traded at one-third their value in 2016, the height of the daigou craze.

“When you’ve spent 57 years at a business, you don’t want to see the business suffer, and you want to see the business successful,” said former chairman Marcus Blackmore, son of the firm’s founder and its top shareholder with 19%.

“I have no doubt in my mind that Kirin will deliver on that promise to me,” added Blackmore, 78, in a phone interview.

Kirin, which makes about half its sales from alcoholic drinks, including top Australian beer brands like Tooheys, said it would benefit by joining a pharmaceuticals unit based in Japan with an already large Australian footprint.

“In the health sciences area, Kirin is strong in Japan while Blackmores has a strong presence in Australia, China, and Southeast Asia,” Kirin Senior Executive Officer Takeshi Minakata told a Tokyo news conference.

“The combination of the two companies will enable us to supplement each other’s coverage in areas that have not been covered so far.

The news pushed Blackmores shares up 23% to A$94.26, their biggest single-day gain, and just short of Kirin’s A$95 purchase price as investors considered the deal final while allowing for dividends that might be paid, which would be subtracted from it.

“Higher interloping bids are possible, but we think the odds are low given our A$80 stand-alone assessment of Blackmores’ intrinsic value,” said Morningstar analyst Shane Ponraj in a client note.

Kirin shares fell as much as 3% as analysts wondered if it overpaid.

“The deal just looked a bit expensive and Japan generally takes M&A negatively. A little surprised it isn’t down more.” said Mio Kato, founder of LightStream Research, who publishes on the SmartKarma platform.