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Suntory time: IPO could be Tokyo’s biggest deal of 2013

Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

Ask old hands in Asia's moveable feast of food and drink deals and there is one maxim they hold to: that Japanese companies always overpay. If Suntory, which plans to list its non-alcoholic drinks business in July to raise funds for overseas deals, holds true to form, there will be some happy dealmakers and soft drinks owners. Just as well, then, that it may face constraints.

Since the Japanese giant first mooted its plans last year, its peers have collectively rallied by two-fifths. That should be good for the IPO's pricing. Encouragingly, too, share prices relative to book value have risen by a third – but only by a tenth versus expected earnings – suggesting a reassessment of the sector's value rather than overly optimistic estimates of future sales. As for Suntory's spending power, credit is seductively cheap. But the yen's one-sixth decline against the dollar in those five months will at least curb the company's cash-splashing freedom.

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Japanese drinks companies have spent more than a trillion yen ($10.2-billion) overseas in the past six years – including Suntory's purchase of Orangina Schweppes and Frucor. But there are signs that they may be learning to control their thirst. Kirin, which netted about 50 billion yen in profit from selling its 15 per cent in Fraser and Neave to Thai Beverage in February, has since announced a similarly-sized buyback plan. Suntory executives, too, have said they will walk if deals are too pricey.

Fans of Suntory's Japanese whiskies will be disappointed that the listing will include only its food and soft drinks unit, worth about three-fifths of sales. Lovers of Lost in Translation will have to hold the jokes for now. There are few details of the float size or price yet. But this is likely to be Tokyo's biggest deal of the year, so will attract plenty of interest. Over to investors, then, to make sure they do not overpay.

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