Two years ago, Asahi Kasei acquired 22 million shares of Asahi Breweries Ltd. and formed a business alliance with them. I put a lot of thought into this decision, and it drew a lot of attention in the media as an alliance between completely different fields. The president of Sumitomo Bank, the main bank of both of our companies, asked me if Asahi Kasei would consider buying the shares. Almost 64 million shares in Asahi Breweries had been bought up by the Juzenkai hospital group in Kyoto, and negotiations to buy them back were coming to a close. Asahi Kasei was considered a candidate to purchase a major portion of them.
I considered whether this would be positive for Asahi Kasei, and whether it would benefit Asahi Breweries as well. Seeing benefits for both companies, we accepted the offer. We felt that combining Asahi Breweries’ fermentation technology with Asahi Kasei’s biochemicals would expand our technological range and benefit both companies in a number of ways including R&D, information exchange, and sales.
Asahi Kasei has long had food-related businesses such as flavor enhancer and frozen foods, and we have subsidiaries and affiliates in table salt, liquor, and ham. I also felt that beer, whisky, and soft drinks were food-related businesses with good prospects. So we decided to acquire the Asahi Breweries shares.
We decided to sell some of our Sumitomo Bank shares to raise funds for the purchase. Since we would realize a gain on the sale, a tax would be incurred, but our acrylic fiber business in Ireland was struggling just at that time, so we could avoid the tax by offsetting the gain with restructuring expenses if we acted quickly.
When we started the business, the Irish government was offering aggressive incentives to attract business. We established a company to make acrylic staple fiber and a yarn spinning company in May 1974, but the first oil shock caused construction costs to soar and market conditions to slump, so they were never profitable.
Since the business in Ireland was desperate, I had asked Reiichi Yumikura (currently vice president) to make a drastic restructuring plan. It was just at this time that the proposal to purchase the Asahi Breweries shares came up. If both moves were simultaneous, we could kill two birds with one stone and avoid paying extra taxes.
We created a new company in Ireland to purchase the equipment from the existing companies at a reasonable price. The losses incurred on the asset sale by the existing companies were settled by Asahi Kasei forgiving our loans to them.
The debt waiver amounted to about 12 billion yen and Asahi Kasei recorded this as an extraordinary loss, half of which was offset by the gain on sale of Sumitomo Bank shares and the other half by profit from selling land in Yokohama. Since the taxable income was offset by the extraordinary loss, we avoided an increased tax expense.
Furthermore, since the extraordinary loss was incurred by capital impairment and loan forgiveness, there was no capital outflow. The funds raised by selling shares and land could be directly used to purchase Asahi Breweries shares. It really was killing two birds with one stone.
So we were able to restructure the business in Ireland without impacting our earnings, and we established a long-term collaboration with Asahi Breweries which will be extremely valuable for strengthening Asahi Kasei’s food-related businesses.
Working with Asahi Kasei also brings Asahi Breweries various benefits beyond just stabilizing their shares. One of them is the Asahi Kasei Group’s “Asahi Beer Drinking Campaign.” The market share for Asahi beer in Nobeoka used to be under 10%, but we’ve already got it over 30%.
I’ve also changed the beer I drink to Asahi beer, and I’m also drinking whisky from Nikka Whisky, a subsidiary of Asahi Breweries. Of course, Asahi Kasei’s campaign isn’t going to significantly affect the overall market shares in the beer industry, but since we formed a partnership, I think we should cooperate as much as we can.
Parading the Beer Drinking Campaign float of Nobeoka Daishi Festival.