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Photo: Lion Nathan
05 December 2008

Lion Nathan merging with Coca-Cola Amatil?

Whoa. Just when everybody thought that the Australian beer market was a neatly carved up duopoly with Coca-Cola-Amatil looking after the rest, we were forced to rethink our assumptions. On 17 November 2008 Australia’s number two brewer Lion Nathan confirmed that it is in discussions with Coca-Cola Amatil (“CCA”) regarding a potential merger. Lion Nathan said it would acquire all of the issued shares in CCA via a scheme of arrangement. If CCA accepts the offer, the resulting entity would resemble a complicated foursome as Lion Nathan is majority-owned by Japan’s brewer Kirin (46%) and CCA is in cohorts with SABMiller.

As said, if CCA were to merge with Lion Nathan, they would create the leading Australian and New Zealand beverage company with interests in beer, wine, spirits and a 60 percent share in Australia’s soft drinks market.

Coca-Cola Amatil recently expanded into alcohol by starting a joint venture with SABMiller, selling Peroni Nastro Azzurro and Miller Genuine Draft. The venture, called Pacific Beverages, also has distribution rights in Australia for premium spirits brands like Jim Beam, Rémy Martin and Absolut vodka. It plans to open its first brewery north of Sydney in 2010.

Lion Nathan said the deal would create synergies of as much as AUD 130 million (EUR 66 million) a year, mostly by streamlining distribution and sales.

The part-cash-part-share offer which values CCA at AUD 7.9 billion (EUR 4.0 billion) represents a premium of 31 percent to CCA’s share price on 14 November 2008. Under the proposal, CCA shareholders would receive AUD 6.35 in cash plus 0.469 Lion Nathan shares for each CCA share.

Lion Nathan says that the merged entity will maintain a conservatively geared balance sheet with a limited amount of transaction debt (approximately AUD 800 million) for which Lion Nathan has obtained committed bank facilities.

However, on 17 November 2008 the board of CCA announced “they would not proceed with further examination of the proposal as it had material deficiencies”.

Some analysts think, writes John Harvey from Adelaide, that Lion Nathan can easily afford to pay more for CCA, considering the synergies that would flow from such a merger. Lion Nathan’s move to encompass the Australian non-alcoholic beverage market is interesting at this time of global financial uncertainty, given that Lion Nathan’s parent Kirin already has National Foods (Berri fruit juice and Dairy Framers brands) and recently has shown interest in buying Schweppes Australian operations. Very likely, there is more action to come, particularly as The Coca-Cola Company (TCCC) – holding 30.4 percent of CCA shares – is in communication with Kirin regarding the offer.

When asked about his offer for Coca-Cola Amatil, Rob Murray, Lion Nathan’s CEO, in a recent interview said: “They [Kirin] certainly didn’t come up with the proposal, though. We work collaboratively with Kirin and always have done. And we took a proposal to them and said, ‘ Look, there’s a great opportunity here. You’d have to play a major role in it.’And, they saw the opportunity and came along for the ride. So we’re very grateful for the support that they’ve given us.”

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