Bottle bond

When family-controlled Japanese drinks business Suntory had its $4bn IPO in July, many analysts felt that the shares were overvalued compared to its peers. But what non-Japanese investors failed to understand is that the price includes a family premium. Suntory is iconic in Japan, and so is the Saji family which controls it. Those who bought shares are showing their trust in the Sajis. But could the nay-sayers be right?

Suntory was founded in 1899 and has long been famous in Japan for its alcoholic drinks. It arguably became even better known when it featured in the film Lost in Translation – it was the maker of the whisky that the hapless Bill Murray character was advertising on his trip to Tokyo. The Yamazaki whiskies have won many awards and are generally considered to be the best made outside Scotland.

Suntory doesn’t just make spirits. Recently it acquired iconic British brands Ribena and Lucozade from GlaxoSmithKline, following its acquisition of Orangina in 2009 and New Zealand’s beverage-maker Frucor Group. Suntory is also expanding into China through a deal with brewer Tsingtao. This strategy follows a trend for Japanese firms, which are increasingly looking beyond the country’s ageing population for growth. Over 60% of Suntory’s profits already come from overseas. More acquisitions are possible, as Suntory tries to reach the self-imposed target of doubling sales by 2020.

Wall Street analysts collectively raised an eyebrow when they saw the share price debut at a level that they thought was high, and even more when early demand sent it higher still. Compared to its peers, they said, Suntory was overpriced. But they didn’t understand the whole picture. Investors – and especially Japanese ones – seem to be comfortable with the shares’ price because the Saji family still controls 59.5% of the business. Shareholders evidently trust the family to make good decisions in the future, as they have in the past.

Advocates of long-termism might well cheer the shareholders’ far-sightedness and say that this is a fantastic vindication of the family business model. But they might only be half right. The real value of the business is based not on the family’s past glories, but with its future leadership – more specifically with its succession plans. At 67, third-gen chief executive Nobutada Saji (pictured, left) is surely thinking about stepping back from the hot seat. Not a great deal is known about who will take over.

However, it is widely thought that the fourth-generation might retreat from the complex soft drink brands and concentrate on the smaller, but more prestigious, whisky business – which was not included in the IPO and is still 100% family-owned. That would be fun, and its long-termism (whisky takes a long time to mature) is a better fit with the family business ethos than the wham-bam world of consumer goods.

That should worry investors. They may have paid over the odds for the Sajis’ nous and vision. If the next generation prefers not to get their hands dirty, but to take a more passive ownership role, then shareholders might grumble about the fact the family are still calling most of the shots, not to mention taking most of the profits. This isn’t just a problem at Suntory. Across the world next-gens are increasingly realising that they are not equipped to manage the fantastically complex, multinational operations their family businesses have become, and instead are deciding that an ownership role suits them best.

It’s hard to know what’s going on in the inner circle of the Saji family, but if the next generation does intend on taking a back seat then they have a responsibility to shareholders to communicate that, and to explain what the company’s leadership will look like in the future. The problem could well be that before they tell shareholders what’s going on, they have to have a hard conversation with the company’s patriarch about his future. To be fair to investors, the next-gens should take a deep breath and have that chat.