The hedge funds sitting on the register of Coca Cola Amatil (CCL) in expectation of an easy profit from an expected confirmed bid from Lion Nathan, bailed out yesterday after the bid was terminated, and in doing so drove the company’s share price sharply lower.
In fact the shares had their biggest fall for around 12 years after Lion, which is 46% owned by Kirin brewery of Japan, abandoned its $7.3 billion proposed offer made late last year.
Lion Nathan won’t “invest further effort in pursuing this transaction” without the support of all parties, the Sydney- based brewer said in a statement today
Coca Cola Amatil (CCL) shared fell 12% to $8.24 in early trading. They closed down 11% at $8.50, a loss of $1.05 overall.
The withdrawal was reported in morning media and confirmed before trading started by both companies.
The Atlanta based Coca Cola Company, which controls around 30% of CCL’s capital, rejected the proposal from Kirin, citing unattractive terms and conditions.
It told Kirin it was rejecting the offer. Some analysts claim it has more to do with rivalry in the Japanese soft drink market than here in Australia. Coke also reportedly wanted control of CCL’s key water brand, Mount Franklin.
There was also bad blood between the CEO of CCL, terry davis (who described the idea as "half-baked") and Rob Murray, the CEO of Lion Nathan. CCL is the larger company, but shareholders would not have had a dominant stake in the merged company.
Mr Murray had wanted to run the combined company, relegating Mr Davis or forcing his exit.
Lion Nathan shares rose 3.6% to $8.48 as investors judged that it was the winner, so far. They later retreated to close up 23c at $8.41.
It will remain a mostly pure beer play, with a small wine investment, unlike rival Fosters, where wine is underperforming and beer is the cash cow and financing the underperforming assets. We are expecting a statement from Fosters in the next week on its wine strategy with the interim results.
Lion Nathan offered shareholders in Coca Cola Amatil $6.15 in cash and 0.469 LNN shares for each CCL share, based on Friday’s close for CCL, the offer valued it at $10.
Lion Nathan said it was surprised that "The Coca Cola Company had ceased talks over the proposal. It claimed that CCL had not meaningfully engaged with Lion Nathan given the "attractiveness" of Lion Nathan’s proposed offer."
"In the circumstances, Lion Nathan has decided to withdraw its proposal and to continue to focus on its growth strategy and FY09 (2009 full year) earnings step-up," Lion Nathan said.
Lion Nathan chief executive Rob Murray said Lion Nathan had made a "very attractive" offer at a 30% premium in challenging market conditions.
"It is disappointing that CCA’s shareholders will not have the opportunity to consider our proposal and enjoy the benefits of the merger would have delivered," Mr Murray said.
"We are not, however, prepared to invest further effort pursuing this transaction unless all parties are willing to try and facilitate an outcome.
"We will continue to focus on delivering strong returns for our shareholders."
Kirin has said it would finance the cash component of the offer but that would result in it taking a controlling 47.5% stake in Lion Nathan after the transaction completed.
But Lion Nathan would have been run as a stand alone Australian company, but Kirin would have been able to consolidate its results under Japanese law.
CCL reports its full 2008 earnings later this week on Thursday. They are expected to be solid.
Lion Nathan holds its AGM on February 26.
