A woman walks past a signboard of Kirin Brewery Co. at its headquarters in Tokyo November 29, 2008.

Kirin Holdings Co. rose the most in eight months in Tokyo trading after the Nikkei newspaper reported Japan’s biggest beverage maker may merge with Suntory Holdings Ltd. as demand wanes for beer and soft drinks.

Tokyo -based Kirin has this year announced purchases worth more than US$4 billion, including taking full control of Australian brewer Lion Nathan Ltd., as its main Japanese beer business shrinks. The merger with Suntory would create a drinks company with higher sales than Coca-Cola Co. and consolidate Kirin’s position as Japan’s top-selling beermaker.

“A merger with a major firm like Suntory is the best way for Kirin to address its need to strengthen earning power in its domestic business,” Naomi Takagi, a Tokyo-based analyst at JPMorgan Chase & Co., said in a report to clients Monday. “The first benefit of the merger would be an increase in the company’s ability to control prices.”

The Japanese companies are in talks and may agree to merge this year, the Nikkei reported, citing unidentified people. Kirin President Kazuyasu Kato and Suntory President Nobutada Saji began talks at the end of last year, the report said.

Kirin spokesman Makoto Ando and Suntory spokeswoman Aya Takemoto declined to confirm or deny whether the companies were in talks.

‘Shrinking market’

Suntory is unlisted and controlled by Saji and his family. Sapporo Holdings Ltd., which like Suntory has about 12 percent of Japan’s beer market, and has a market value of 211 billion yen (US$2.3 billion).

“The problem in a shrinking market is overcapacity so they may share production,” said Tomonobu Tsunoyama, an analyst at Tokai Tokyo Securities Co., who has a “neutral” rating on Kirin shares. “They will likely keep their brands as they have a long history.”

Kirin makes Ichiban Shibori beer and Kirin Lager, and distributes brews in Japan made by Heineken NV and Anheuser-Busch InBev NV. Suntory brews Malt’s and Super Magnum Dry, and distributes for Carlsberg A/S.

“Kirin is likely to be the acquirer,” said Taiji Okusu, managing director of investment banking at Credit Suisse Securities (Japan) Ltd. He said a takeover would be examined by Japanese regulators as the combined company would have about 50 percent of the domestic beer market.

Kirin led Japan’s beer shipments in the first half, edging out Asahi Breweries Ltd. for the first time in three years. Kirin had a 37.5 percent share of the beer market, followed by Asahi Breweries Ltd. with 36.9 percent, Suntory with 12.7 percent, and Sapporo with 12.1 percent.

Sapporo shares rose 6.1 percent Monday in Tokyo, and Asahi gained 2.5 percent. Mercian Corp., Kirin’s wine unit, jumped 5.2 percent.

Source: Bloomberg