Lion Nathan is going to have to make a bit more noise if it is to merge with Coca-Cola Amatil.
That noise will have to be a rustle of a wallet being opened, a cheque book being prepared, and of course, a different sort of noise: the word "yes" from Coca Cola Amatil’s US controller, The Coca Cola Company (known for its Big Board symbol KO).
I wouldn’t hold my breath wondering about that, as CCA and its big shareholder would have worked out that this is really a move by Kirin of Japan, the 46% shareholder in Lion Nathan for growth by bidding for a company that has strong shares in a sector Kirin isn’t in.
Kirin has moved heavily into dairy and fruit juices in Australia through National Foods and while there are some growth parts in those businesses, the soft drinks and the alcoholic beverages CCA has put together offer more than that, and the bulk beer dependency of Lion.
So Lion’s decision to press on with the spurned offer is a bit heroic, especially after it revealed a modest 4.2% increase in operating profit in the year to September 30. But by another measure, profit dipped 3.3% to $272.7 million for the year.
Shares in Lion Nathan fell 35c, or 4%, to $8.30. CCA shares rallied as much as 13c, or 1.4%, to $9.44, then fell in the afternoon to $9.11, down 20c on the day.
Lion Nathan, whose brands include XXXX, Tooheys, Hahn and Boag’s, released a presentation to the ASX yesterday promoting its cash-scrip proposal, but the terms of the offer remain unchanged.
It was as if the implicit rejection by CCA the day before (which was termed incomplete and undervaluing the company’s assets) hadn’t happened, nor the comment that KO wasn’t really interested.
The proposed scheme of arrangement has an offer of $10.80 per CCA share, which values the company near $8 billion. CCA holds the Australian bottling rights for Coke products and produce a variety of food and drink products including Mount Franklin water, Powerade and SPC.
Lion Nathan raised the bottom end of its forecast for 2009, saying it now expected a net profit between $300 million and $315 million. CCA is expecting to earn around $360 million this year ($310 net profit for 2007).
Lion said in the statement to the ASX that ”Whilst economic conditions are volatile at present and the new financial year will be challenging, the company remains confident of an earnings step-up in the 2009 financial year".
The boost will come from the acquisition in late 2007 of J Boag and Sons from San Miguel, the Filipino company 20% controlled by Kirin.
It will need something as the company’s second half profit barely budged, rising a mere 0.2% to just over $110.6 million from $110.4 million in the previous corresponding half.
The second half of the year covers winter and it’s not the strongest of times for a brewery: the approaching summer is peak sales and profit time.
Lion Nathan paid $325 million for J Boag. The purchase added about $61 million to this year’s sales.
In New Zealand, where Lion Nathan is the biggest brewer, earnings dropped 53% to $28.6 million as a slump in the Kiwi dollar cut the benefits of price rises and demand for beer.
The wine business, with brands such as Petaluma and Wither Hills, turned in a second-half profit of $7.7 million from a loss $3.8 million after cutting sales and distribution costs.
