Wine: the new poison pill?
In recent months there has been continued speculation that Foster’s might merge with Coca-Cola Amatil. The rumour grew so strong that Coca-Cola Amatil (CCA) felt compelled to respond to it at their Annual General Meeting on 22 May.
Terry Davis, CCA’s Chief Executive, reportedly told reporters that they were happy to continue pursuing organic growth via their joint venture with SABMiller - Pacific Beverages.
Mr Davis added that they were not contemplating a major acquisition in the next couple of years nor would their business be up for sale. However, he did say that his board would be prepared to look at any proposals put forward provided the multiples offered compared to that of similar deals such as the takeovers of Schweppes and Frucor. Last October, France’s Group Danone sold their Frucor drinks arm in Australia and New Zealand for a staggering multiple of 14 times Frucor’s EBITDA, according to media reports.
Already, towards the end of last year CCA dismissed a takeover offer from brewer Lion Nathan despite Mr Davis admitting that the logic for merging soft drink and beer was "very strong".
CCA’s major shareholder, The Coca-Cola Company, was a major driver against the takeover bid, as an alignment of alcoholic and non-alcoholic beverages runs counter to Coca-Cola’s fundamental policies. Some observers in Australia have since suggested that The Coca-Cola Company wields too much power over their Australian bottler.
Media reports alluding to tensions between CCA and their largest shareholder were again refuted by CCA.
Foster’s, meanwhile, are expected to announce some major business changes soon, which might see them demerging their wine business to make their beer business more alluring to potential bidders.
Nielsen data for the March quarter showed an 11 percent rise in the value of beer sold in Australia but the value of wine sold turned negative for the first time in four years, according to Goldman Sachs JBWere.
Lion Nathan lost some market share to Foster’s, but Lion Nathan’s prices grew at a slightly higher rate. In wine, volumes remained soft and pricing growth has continued to slow.
To add to Foster’s woes, their Victoria Bitter brand (VB) continues to decline. Twenty years ago one in three beers drunk by Aussies was a VB, today it is one in four of the mainstream segment, which accounts for about half the market. Although VB is still the country’s biggest selling beer, twice the size of its nearest rival Tooheys New, the decline continues but the brewer says it is slowing. Recent Nilsen data show that its share of the regular beer market dropped in the first quarter of this year, compared with last. A marketing campaign for VB, designed around the brand’s heritage, is planned for this month.
