Expert Okays GSK’s Sale of Ribena, Lucozade to Suntory

GlaxoSmithKline’s sale of Ribena and Lucozade to Japan’s Suntory Beverage & Food Ltd completes a transition for GlaxoSmithKline that started in the second half of the 20th century.

Christian Stadler, Warwick Business School associate professor of Strategic Management, Christian Stadler, analysis of the deal made available to Nigeria CommunicationsWeek said that “I don’t think it is a sign that Ribena and Lucozade have been doing badly, rather that they are really consumer goods, which are more suited to a pure consumer company that operates in that market, like Suntory”

Stadler has researched GlaxoSmithKline for his book “Enduring Success”, which looks at how long-living corporations have survived for so long.
 
Stadler said: “This is a question of how do you structure your portfolio, and I think this is a good idea for GlaxoSmithKline. A company is constantly assessing its portfolio and research shows that diversification into related products is best for profit. The big question for any company, though, is what are related products? And GlaxoSmithKline have decided that their core business should be in prescription drugs and consumer healthcare brands such as Panadol and Aquafresh rather than consumer goods.

“Looking at GlaxoSmithKline’s long history, since New Zealander Joseph Edward Nathan founded what was to become Glaxo Laboratories in 1861, it started out producing milk powder while Ribena was launched in the 1930s, and Lucozade in the 1920s, but the sale of them today completes a transition for GlaxoSmithKline that started in the second half of the 20th century”

According to the Professor, iIt has moved further and further into the prescription drug market and that is now its core business, with healthcare products added alongside them.

“I don’t think it is a sign that Ribena and Lucozade have been doing badly, rather that they are really consumer goods, which are more suited to a pure consumer company that operates in that market, like Suntory. By having a wider diversity you increase the complexity to manage the company, so by focusing more on prescription drugs and healthcare products it will make it easier to run the company” he added

Japan’s Suntory Beverage & Food Ltd was reported to have bought GlaxoSmithKline’s Lucozade and Ribena brands for 1.35 billion pounds to help the Japanese company expand into new markets.

The acquisition, announced by the companies on Monday, had been widely anticipated since people close to the process said last week that Suntory was in advanced talks on a deal that would preempt an auction of the iconic British drinks.

Japan’s second-largest drinks maker has plenty of cash after an initial public offering in June that raised four billion dollars.

It was always seen as the most likely buyer for the brands after GSK announced plans in April for their disposal.

Lucozade and Ribena are well-loved in Britain, but lack global reach, especially in the big emerging markets that are becoming the focus of the British drug maker’s consumer health business.

For Suntory, however, they offer a growth opportunity to counter sluggish demand at home. Suntory bought the Orangina Schweppes drinks brand for more than three billion dollars in 2009, giving it a significant presence in France and Spain.

By acquiring a new business with a focus on Britain, Suntory said it expected to further grow sales. The purchase also allows the Japanese group to extend its reach into countries where GSK already operates, such as Nigeria and Malaysia.

Despite being on the market for around 80 years, Lucozade and Ribena have combined annual sales of just over 500 million pounds a year.

That puts the transaction on a multiple of 2.7 times revenue – at the high end of recent soft drinks deals.

Suntory, which is better known for its beer and Yamazaki whisky, said the deal would have a limited effect on 2013 results and it was “currently examining the effect it will have on the performance outlook for the following business year and onward”.

The sale is expected to be completed by the end of the year, subject to regulatory approvals. For GSK, it will yield net proceeds of around 1.3 billion pounds – after tax, fees and costs – that will be used to reduce debt and for general corporate purposes.

The net gain will be excluded from 2013 core operating profit and earnings per share.

A GSK spokesman said Suntory’s bid was also attractive because it would protect jobs in Britain. Some 700 employees will transfer to the Japanese group, including around 500 workers at GSK’s Coleford factory in the west of England.

The GSK spokesman said there was expected to be very little, if any, impact on jobs as a result of the sale.