Kirin on a shopping spree
Kirin Holdings announced on 27 April 2009 that it has reached an agreement with Lion Nathan’s Independent Board Committee on key terms under which Kirin would acquire all of the issued shares in the Australian brewer that it does not already own.
The leading Japanese brewer, which acquired its first stake in Lion in 1998, will buy the remaining 287,786,220 shares (54 percent) in Lion Nathan for an offer consideration of AUD 12.22 per share.
The deal values Lion, which brews Tooheys and XXXX beer amongst others, at AUD 6.5 billion (USD 4.7 billion), a 47 percent premium over the Australian company’s closing price on 22 April, when its shares were suspended before the announcement of the Kirin offer.
Lion Nathan had AUD 1.629 billion of debt at end-September, its latest annual report showed. In Australia, Lion Nathan has a 44 percent share of the beer market, compared with 53 percent for Foster’s.
Kirin’s offer is the most recent in a series of acquisitions in Australia’s food and beverages sector. Kirin’s rival, Suntory, lately bought Frucor, a Groupe Danone unit based in Australia and New Zealand, for over EUR 600 million, while Asahi Breweries bought Schweppes’ Australian drinks business, in a USD 774 million deal. Kirin itself bought dairy producers National Foods and Dairy Farmers.
What is more, Kirin paid an EBITDA multiple of 12 times for National Foods and 13 times for Dairy Farmers, while Suntory paid 13.3 times for Frucor, and Asahi is paying 15 times for the Cadbury Schweppes Australian beverage business, reports say.
Incidentally, late last year, a USD 4.9 billion takeover approach by Lion Nathan, backed by Kirin, for bottler Coca-Cola Amatil failed as the latter claimed the terms offered were too low.
By taking complete control of Lion Nathan, Kirin said it aims to accelerate management decision-making, as it seeks to build comprehensive drinks and beverage operations in Asia and Oceania.
Nevertheless, market observers are wondering if Kirin is not overpaying. Granted, Kirin needs to diversify away from a stagnant Japanese market. Hence it has set itself the goal of securing 30 percent of its sales overseas by 2015, up from about 24 percent today.
But why is it paying a 47 percent premium over the target’s stock price on 22 April?
Kirin is Lion Nathan’s major shareholder and faces scant competition for the balance of the Aussie firm. Moreover, there are no synergies to be had from Kirin’s other Australian investments which are in the dairy industry.
Lion Nathan – which shares with Foster’s an alcoholic beverage market duopoly – forecasts earnings growth of 12 percent to 16 percent for the full year to September 2009. This should help Kirin achieve a second goal of increasing its operating income margin to nearly 10 percent by 2015, from 6.3 percent expected in 2009.
That is an improvement on the status quo, but the financial market does not seem certain that this deserves the rich premium: Kirin’s shares ended down 1.6 percent on 27 April.
