* Acquisition helps Suntory expand beyond domestic market
* Suntory sees scope for gistics, procurement synergies
* Deal expected to be completed by end of year
* GSK expects net profit of 1.3 billion pounds
By Ben Hirschler and Ritsuko Shimizu
LONDON/TOKYO, Sept 9 (Reuters) - Japan's Suntory Beverage &Food Ltd is to buy GlaxoSmithKline Plc's Lucozade and Ribena brands for 1.35 billion pounds ($2.1billion) to help it expand into new markets.
The deal had been expected since people close to the processsaid last week Suntory - best known for beer and Yamazaki whisky- was in advanced talks on a purchase that would pre-empt anauction of the British drinks.
Japan's second-largest drinks maker by sales after the localarm of Coca-Cola Co has plenty of cash after raising $4billion in a stock market flotation in June. It was always seenas the most likely buyer for the brands after GSK announcedplans for their disposal in April.
The energy and blackcurrant drinks are popular in Britainbut from GSK's point of view lack global reach, especially inthe big emerging markets that are becoming the focus of theBritish drugmaker's consumer health business.
For Suntory, however, they offer a growth opportunity tocounter sluggish demand at home.
One person at a private equity firm which had considered arival bid said Suntory was paying "a very hefty price",explaining GSK's willingness to allow it to pre-empt an auction.
Lucozade and Ribena, introduced in 1927 and 1937respectively, have combined annual sales of just over 500million pounds, putting the transaction on a multiple of 2.7times revenue - at the high end of recent soft drinks deals,which have tended to be in the 1.5 to just over 2 times area.
Suntory bought the Orangina Schweppes drinks brand for morethan $3 billion in 2009, giving it a significant presence inFrance and Spain. By acquiring a new business with a focus onBritain, Suntory said it expected to further increase sales.
The purchase also extends its reach into countries such asNigeria and Malaysia.
Suntory Beverage President Nobuhiro Torii said the price wasjustified because the chance to buy the brands was "an extremelyrare opportunity" and there was scope for cost savings in bothlogistics and procurement.
"Considering synergies and such, this is not at all anexpensive purchase. I wouldn't say it's cheap, but it's notexpensive. Our management will be tested by how much we canachieve in synergies," he told reporters.
LONG-TERM POSITIVE
Industry analysts said the price was high but the drinksadded strong brands and distribution channels that could be usedwith Orangina to enter emerging markets.
Moody's Investors Service said in a note written before thedeal was unveiled that it viewed the expected acquisition as along-term positive for the Japanese company.
"One of Suntory's main rating constraints has been itsgeographic concentration as about 80 percent of sales comes fromdomestic sources. Acquiring these UK brands will improve itsgeographic diversification," the ratings agency said.
Suntory said the deal would have a limited effect on its2013 results and it was examining the effect it will have on itsoutlook for the following business year and beyond.
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 billionpounds after tax, fees and costs, which will be used to reducedebt and for general corporate purposes. That may disappointsome investors who had hoped GSK might use the proceeds to pay aspecial dividend.
The net gain will be excluded from 2013 core operatingprofit and earnings per share.
A GSK spokesman said Suntory's bid was also attractivebecause it would protect jobs in Britain. Some 700 employeeswill transfer to the Japanese group, including around 500workers at GSK's Coleford factory in the west of England.
The spokesman said there was expected to be very little, ifany, impact on jobs as a result of the sale.
Other potential buyers who had been eyeing Lucozade andRibena included Blackstone, Lion Capital, Cinven, CVC Capital Partners and KKR.
JP Morgan and Greenhill acted for GSK on thedisposal, while Morgan Stanley advised Suntory.
Lucozade and Ribena are the latest in a series of venerableBritish food brands to be bought by foreign buyers. Other dealsinclude last year's purchases of breakfast cereal Weetabix byChina's Bright Food and Branston pickles by Japan's MizkanGroup, as well as the 2010 sale of chocolate maker Cadbury toKraft Foods Group Inc.
Glaxosmithkline (GSK)