Lion Nathan snaps up Tasmanian brewer Boag’s
It’s happened: The San Miguel Corporation, a Philippine concern, has signed a definitive agreement to sell J Boag & Son (Boag’s) to Lion Nathan for a total consideration of AUD 325 million (EUR 192 million)
Ah, well, they could not get Coopers so they poached Boag’s, that slightly quirky Tasmanian boutique brewer that has about 2.5 percent of the Australian market and 7 percent of the premium beer market.
That, at least, is the opinion forwarded by some Australian commentators when the news broke at the beginning of November that Lion Nathan, Australia’s number two brewer, will buy Boag’s.
With annual sales revenue of AUD 61 million in 1999, prior to San Miguel’s acquisition, Boag’s has grown revenue to AUD 92 million in 2006. On the face of it, the price Lion Nathan is willing to pay for Boag’s looks pretty steep in terms of traditional multiples.
But think of it this way: that’s how much it would have cost Lion Nathan to build a premium brand.
The Boag’s deal, like the previously targeted Coopers, is not about buying market share. It’s about garnering a larger share of the premium segment which is growing rapidly while the Australian beer market, on the whole, has remained flat.
Lion Nathan has more than its share of the non-premium end but is light on when it comes to brands, which the upwardly mobile status-seeking consumers want.
The J Boag & Son portfolio is led by mainstream brand Boag’s Draught and premium brand James Boag’s Premium. It also includes James Boag’s Premium Light and Boag’s St George, among others.
Boag’s, which was bought by Philippine concern San Miguel seven years ago, has a history of awkward ownerships. All the while it was owned by San Miguel, Boag’s and its friends worried that it could fall into the hands of Lion Nathan because of shareholder politics. It will be remembered that Japanese brewer Kirin is a shareholder in both San Miguel and Lion Nathan. Kirin controls 46 percent of Lion Nathan.
San Miguel’s strategy changes in recent years have made many market observers shake their heads in wonder: at one stage San Miguel was going to strengthen its beverage portfolio, next thing they knew it had withdrawn from bottling Coca-Cola in the Philippines. Same with Australia: at first it seemed like it was keen to gobble up Australian food companies, now it’s keen to get out of Australia altogether.
Fortunately, for San Miguel, Kirin was ready to take over.
In principle, the Boag’s deal is dependent on another deal materialising first – San Miguel selling its Australian dairy producer National Foods to Kirin. However, that deal should not pose any problems and should be completed by the end of this year.
Commenting on the Boag’s deal, Ramon Ang, President and COO of San Miguel Corporation, said: "While Boag’s is an excellent business with strong brands, San Miguel is in a process of redefining itself and injecting into our operations a higher return-on-investment focused discipline. We are reassessing our priorities and reshaping our portfolio to include new businesses that we feel will give us higher margin growth in the near- and medium-term."
What he did not say was that in the face of Australia’s drought-stricken dairy industry, San Miguel proved a coward and decided to take the money and run. By rolling National Foods and Boag’s into a neat parcel, Lion Nathan got what it wanted (Boag’s) and left its owner Kirin with something it did not really need.
So much for the politics behind transactions.
Lion Nathan’s Chief Executive Officer Rob Murray said the company intended to invest in Boag’s and expand production when it took over in January 2008.
Volume would be increased from the 450,000 hl Boag’s currently brews. But Mr Murray would not rule out job losses at the brewery. The brewery employs about 50 production workers in Launceston and about 70 marketing and administration staff in Hobart.
Mr Murray said Lion Nathan was "very aware" of the importance of the Tasmanian heritage to the brand. Lion Nathan would brew the beer solely in Tasmania and use as many Tasmanian ingredients as possible.
Let’s wait and see.
