Lion Nathan’s shares jumped by a record 42.5% at one stage yesterday after the directors fell over themselves to say yes to a rich offer from Kirin.
The offer of $12.22 a share, announced by the Australian brewer in a statement, was 47% more than Lion Nathan’s price last Wednesday night. That was the day before the talks with Kirin were revealed to the market.
The offer, comprising $11.50 cash and dividends of 72 cents, is 12.5 times expected earnings before interest, taxes, depreciation and amortization, Lion Nathan said.
That’s a big multiple, especially given the financial crunch and the recession which has cut the premiums on many deals, or killed the deals completely.
But investors rushed in and bid the shares up to a day’s high of $11.84, before the closed at $11.57, up 39%, or $3.26 on the day.
At that price no one is backing another bidder to emerge. Fosters can’t do anything and there’s no rival brewing group in sight, not with kirin controlling 46% of Lion’s issued shares already.
Kirin move underlines the importance of Australia and New Zealand to the Japanese liquor industry.
Its home market is aging, literally dying as Japan gets older: fewer young consumers are drinking beer or even spirits.
The high yen means Kirin can convert is falling cashflows into cheaper Australian and New Zealand dollars (as can other Japanese grog groups such as Suntory and Asahi) and pick up assets and growth on the cheap.
Australian and New Zealand juice, milk and now beer assets are undervalued by local investors who ascribe no strategic value to them, except when someone like Kirin comes calling.
So now the Japanese takeover of the Australasian beverages industry is all but complete with Kirin now the dominant player after winning approval from independent directors in brewer Lion Nathan for a mop up bid.
They way Australian investors have eagerly sold Australian food and beverage assets to the Japanese buyers makes a mockery of the debate about the inroads Chinese companies want to make into Australia and Chinese influence.
In terms of the Australian economy and media Kirin is now one of the biggest spenders on marketing and will control the fortunes of the Australian newspaper, magazine and TV and radio businesses. It will be a sponsor of cricket, Rugby League and a host of other events.
The argument over Chinalco investing in Rio Tinto (run by a London-based collection of incompetents) pales behind the importance now Kirin has in everyday Australian life.
They will control a good part of the milk and fruit juice we drink every day, beer, some wine, spirits and the marketing of them.
Control of Lion will mean Kirin has its foot on the major milk producer in National Foods, plus the major player in NSW, Dairy Farmers (That was a nice one by Graeme Samuel at the ACCC), the major juice operator in Berri and now the country’s second biggest beer group.
Rival Suntory bought the Australia and New Zealand operations (Red Bull, juices) of the Frucor division of France’s Danone last month for around 1 billion. Kirin was an underbidder there, as were other Japanese and Australian groups.
Suntory beat Kirin (through its subsidiary National Foods) and Asahi Breweries of Japan, as well as soft drink heavyweights Coca Cola Amatil for Frucor.
Asahi agreed to pay 15.2 times earnings for Cadbury’s Australian soft drinks unit and Suntory agreed to pay 13.3 times profit for Frucor.
So that makes the Kirin price not all that outrageous.
In February, Kirin said it planned to buy 43% of San Miguel which controls 95% of the Philippines’ beer market. Kirin will pay $US1.2 billion, partly funded by the sale of its holding in San Miguel Corp., parent of the Manila-based brewer.
Late last year Kirin used Lion Nathan as the vehicle in an attempted takeover offer for Coca Cola Amatil that went nowhere because the US parent of CCA (The Coca Cola Company) wouldn’t agree.
Lion Nathan’s key brands Tooheys, Boags, Castlemaine, XXXX, Hahn and Swan in Australia plus Steinlager and Speights in New Zealand. Key Wine brands include Wither Hills, St Hallett, Preece, Petaluma and Argyle. It also distributes Becks and Heineken premium beers in Australia
The deal values Lion Nathan at $6.5 billion.
Kirin has done some interesting shuffling of assets in Australia in recent years. It originally had a dominant stake in the San Miguel group of the Philippines.
It bought Boags brewing business in Tasmania, then Berri Juices and then National Foods. Around 18 months ago Kirin shuffled those, doing a deal with San Miguel to buy National Foods and Berri and Lion Nathan, which it controlled 46%, bought Boags.
Kirin then bid heavily for Dairy farmers when the farmer owners of the NSW co-operative saw the money and wanted to run.
Then the attempt to use Lion to grab CCA. When that failed, the market watched and waited for Lion to be approached, but failed to mark up the shares.
That happened last week and now Kirin (ACCC willing, and haven’t they been willing) has assembled the dominant beverages group in Australia.
All it needs is another liquor business say the private equity owned Independent Liquor in NZ.
