EDITOR-IN-CHIEF COMMENT: Blackmores sale - a best-case outcome for all concerned?

By Gary Scattergood

- Last updated on GMT

EDITOR-IN-CHIEF COMMENT: Blackmores sale - a best-case outcome for all concerned?

Related tags Blackmores Kirin

Rumours that the Blackmores’ board – and its largest individual shareholder Marcus Blackmore – were open to a takeover have bubbled away for at least 18 months.

Industry insiders believe that discussions have taken place with several suitors. And maybe even more than one from the home nation of the eventual purchaser – Kirin.

To many outside of Japan, and those with only a passing interest in the dietary supplements industry, the fact that Kirin – best known for its booze - is splashing out $1.2bn on the iconic Aussie nutra brand was probably something of a surprise.

But it shouldn’t be.

Not only has the firm repeatedly stated its intentions to boost its health sciences division as its core beer business struggles for growth, but It has been clear in its ambitions to expand across South East Asia and beyond.

To date, Kirin’s activity in the nutrition space has largely been focused on immune health, via its LC-Plasma strain in B2B channels and its iMUSE range of functional finished products, alongside its majority stake in supplier Kyowa Hakko.

It has had huge success in Japan – being the first company to secure a Food with Function (FFC) immune health claim – but its inroads into the wider region have been slower to materialise.

With this deal, not only will it instantly gain significant market share across Blackmores entire spectrum of supplement products for multiple health conditions, but also improved distribution channels and better access to markets such as Malaysia, Indonesia, India and Vietnam, not to mention China.

In what has been a tough few years for the Australian outfit, the progress it made in South East Asia has arguably been one of the plus points, although its latest financials show that business in Malaysia and Indonesia declined as its overall exports dipped by 15.1 per cent to AUD$93.5m (US$63.7m).

This was attributed to: “Inventory built in markets to ensure product availability for an anticipated COVID-19 surge demand which did not materialise in 1H FY23.”

More positively, in China, which also includes Hong Kong and Taiwan, Blackmore’s revenue was up 6.1 per cent to AUD$93.7m (US$68.9m)

So, Kirin gets a broader portfolio and a better pathway to regional expansion, but what about the future for Blackmores, its staff, and shareholders?

The company, founded by Marcus Blackmores’ father Maurice in 1938, has found life far from plain sailing since the daigou boom of 2015 and 2016 where shares peaked at over $200.

Under the takeover, Kirin will pay a 23.7% premium to the pre-announcement share price of $76.79. While this is around half of the all-time high, shareholders will likely be happy with the outcome after several years of modest performance.

That said, more than one senior industry leader has balked at the valuation, and the initial reaction from investors and analysts in Japan to the all-cash deal has been lukewarm.

In recent years, Blackmores has faced headwinds not only due to the daigou slowdown, the impact of the pandemic and geo-political tensions with China, but also because the company was seen to be slow when it came to innovation.

While its leaders would reject this and point to a slew of recent product launches in China in particular, such as Omega Mini, Vision Care and Energy, Superkids, there is no doubt that NPD concerns were rife in the Australian sector.

In the takeover announcement, Kirin pointed out it was looking forward to “furthering [Blackmores’] commitment to quality ingredients and product development.” Launches in new formats, including functional foods, seem likely.

It’s also notable that Kirin was at pains to stress that Blackmores’ HQ would still be in Australia, and that manufacturing would continue in the country – no doubt a relief both to those working in its own manufacturing site, but also the contract manufacturers for whom it is a major client.

With ‘Made in Australia’ credentials being so strong in export markets, Kirin would be ill-advised to re-visit this at a later date.

The Japanese firm also made clear its respect for Blackmores’ leadership, so it doesn’t appear that any significant personnel changes are on the cards in the short-term. But as anyone involved in a takeover knows, it’s the financial performance and an ability to hit the numbers that will determine the longer-term prospects.

There are also two other factors that are worth noting that may bode well for the future.

From an industry perspective, Japan and Australia have one thing in common – high-manufacturing standards and strict health claims regimes. With Japan’s FOSHU system, and the less stringent but still credible FFC regime, along with Australia’s TGA regulations, the two nations, and its companies, are adept at producing quality products to exceptional standards.

And more broadly, the two countries have a long standing and incredibly healthy trading relationship. Japan was Australia’s third-largest trading partner in 2020, with two-way goods and services trade valued at $66.3 billion. And Japan was Australia’s second-largest export market, valued at $46.4 billion in 2020, accounting for 10.6 per cent of total exports.

Of course, the takeover is now subject to shareholder and regulatory approval, but it could be that this huge deal serves all parties well. Kirin will benefit from Blackmores’ broad product portfolio and distribution, while Blackmores’s shareholders get a decent price for their investment and the firm can hopefully bank on fresh impetus to innovate and maintain its seat at the top table of industry players.

Time will tell.

Gary Scattergood is Editor-in-Chief of FoodNavigator-Asia, NutraIngredients-Asia and CosmeticsDesign-Asia

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