Japanese brewer Suntory Holdings is in talks to buy soft drinks maker Orangina from private equity funds Blackstone Group and Lion Capital, as it pushes for growth outside a shrinking beer market at home.

Privately held Suntory -- in talks itself to be sold to bigger rival Kirin Holdings -- would likely pay more than the $2.6 billion that Blackstone and Lion Capital paid for Orangina in 2006, the Wall Street Journal said.

The Orangina talks are at a delicate stage, a source told Reuters, and it is not guaranteed that a deal will be reached.

It is true that we are in talks, but nothing has been decided and I can't comment further, a Suntory spokeswoman said.

Sale of Orangina, known for its orange-juice based soft drink sold in a distinctive bulb-shaped bottle, could spark further consolidation in the drinks sector and mark a successful exit for the private equity owners.

Buyout firms have struggled to find exit routes for their investments amid global financial turmoil, and traditional routes of selling assets to rivals or taking them public are only just starting to become viable again.

I think we're going to see more deals, and deals at higher prices, said Tom Pirko, president of Bevmark LLC, a beverage consulting firm. It's going to be a good time, for the first time in a long time, to be a seller, as opposed to just a buyer.

Japanese firms are keen to expand overseas as beer sales decline in their rapidly aging home market, where the population is projected to fall by a third in coming decades.

I don't know the details of the (Orangina) deal yet, but it seems to fit Suntory's strategy to expand its overseas business, which is the purpose of the merger with Kirin, said Tomonobu Tsunoyama, food sector analyst at Tokai Tokyo Research Center.

Analysts have said the Kirin-Suntory combination, which would control half of Japan's beer market and 30 percent of soft drinks, would bulk them up to pursue large deals overseas.

SHAKING UP DRINKS

Lion Capital and Blackstone bought Orangina, which gets most of its revenue from Western Europe, in February 2006 from what was then Cadbury Schweppes for 1.85 billion euros ($2.2 billion at the time).

The British candy and drinks giant later separated its remaining U.S. soft drink business into another company, now called Dr Pepper Snapple Group Inc.

The confectionary company Cadbury Plc is now the subject of an unsolicited takeover bid from U.S. giant Kraft Foods Inc.

Pirko said Orangina tended to sell well at restaurants, which have been suffering in the downturn as cash-strapped consumers dine more at home to save money.

Orangina, aside from the iconic bottle and the fact that it always had good on-premise business, has a hard time competing on the shelf, he said.

Orangina was invented by a Spanish chemist and first made in Algeria when it was ruled from France. The company now has about 2,500 employees and had 2008 sales of about 1 billion euros.

Suntory and Kirin said in July they had begun preliminary merger talks, a deal that would create a food and drinks giant with $41 billion in annual sales.

Japan's beer market has shrunk 15 percent in volume terms in the past decade as a wave of baby boomers neared retirement -- a demographic shift that has prompted Suntory and Kirin to aggressively diversify out of Japan and away from beer.

Suntory, known in Japan for its Premium Malt's beer and Boss canned coffee, paid more than 600 million euros for Danone's Frucor juice unit last year and has said it was ready to spend another $2 billion or so on acquisitions.

The company sells soft drinks in China and other Asian markets but does not have a non-alcohol beverage business in Europe, where it runs wineries and a whisky distillery.

Kirin, the maker of Ichibanshibori beer and Afternoon Tea bottled drinks has been most aggressive among Japanese breweries overseas, spending $1.5 billion in the past two years to buy Australia's National Foods and Dairy Farmers.

It spent another $1.4 billion to buy a 49 percent stake in the Philippines' San Miguel Brewery earlier this year and is spending about $2.8 billion to take full ownership of Australia's second-largest beer maker, Lion Nathan, from its current 46 percent stake.

Tsunoyama said there will likely be more acquisitions by Japanese food and beverage companies, especially given the strength of the yen.

They are relatively well-positioned financially and the yen is moving higher, he said.

A Kirin spokesman said his firm has nothing to comment on the news of Suntory's acquisition talks.

Shares of Kirin rose 2 percent, outperforming a 1.6 percent gain in the benchmark Nikkei average .N225. .T

(Additional reporting by Martinne Geller in New York and Nobuhiro Kubo in Tokyo; Editing by Rodney Joyce and Dhara Ranasinghe)

Japan Sale