Melbourne: Lion Nathan Ltd, Australia’s second-largest brewer, has launched a $4.9 billion bid for soft drinks group Coca-Cola Amatil, the latest move in a wave of industry consolidation.
The cash and stock bid, pitched at a 25% premium to Coca-Cola Amatil’s share price, sent the target’s shares up but not as high as the offer value, as Coca-Cola Amatil said the bid had material weaknesses and looked cheap, based on recent deals.
“CCL is definitely not too happy with it. So obviously there is still a risk that the whole deal doesn’t go through,” said Theo Maas, a partner at Fortis Investment Partners, which manages A$5 billion, including Lion Nathan shares.
A takeover of Coca-Cola Amatil, 30% owned by US—based The Coca-Cola Company, would give Lion Nathan a 60% share of Australia’s A$10.3 billion soft drinks market as well as a canned fruits and vegetables business.
Lion Nathan, 46% owned by Kirin Brewery Co said that the deal made sense as there was little cannibalisation between the businesses, but could generate A$100 to A$130 million mostly in savings on distribution to pubs, restaurants and caterers.
“That coupled with the growth opportunities makes the deal compelling,” said Lion Nathan spokesman James Tait.
Recent months have seen a flood of consolidation among global brewers. Coca-Cola Amatil also has a beer joint venture, Pacific Beverages, with SAB Miller Plc, selling Peroni Nastro Azzurro and Miller Genuine Draft.
North American brewer Molson Coors Brewing Co this month emerged as holder of a 5% interest in Lion Nathan’s bigger rival, Foster’s Group Ltd.
And Belgium’s InBev NV is set to become the world’s biggest brewer with a $52 billion takeover of Anheuser-Busch Cos Inc.
“Lion Nathan’s picked a good time to make their offer,” said White Funds Management portfolio manager Angus Gluskie.
He said that Coca-Cola Amatil would struggle to defend the takeover given uncertain markets and a slower Australian economy.
Risks to deal
Coca-Cola Amatil’s shares briefly rocketed to a record high of A$12, before easing to trade up 15% at A$9.51, well below the implied offer value of A$10.28, based on Lion Nathan’s 1.6% share price fall to A$8.81.
Coca-Cola Amatil said there was no guarantee its board or Coca-Cola Co would back the offer, particularly as it was pitched below valuations on recent drinks deals.
Last month France’s Group Danone sold its Frucor drinks arm in Australia and New Zealand for 14 times Frucor’s earnings before interest, tax, depreciation and amortisation, well above the 10.3 multiple Lion Nathan is offering.
However Lion Nathan said Frucor was not a fair comparison as it was a small company that owned its brands, while Coca-Cola Amatil is essentially a bottler.
Coca-Cola Amatil is being advised by Macquarie Capital Advisers. Lion Nathan is being advised by Caliburn, and JP Morgan is advising Kirin.
Lion Nathan’s move took the market by surprise, as focus has been on Coca-Cola Amatil’s expansion plans and Australian drinks giant Foster’s, which is trying to decide what to do with its troubled wine business, the world’s second largest.
Coca-Cola Amatil missed out on buying Frucor and is eyeing Britain’s Cadbury Plc’s Australian Schweppes business.
Kirin has already been expanding in Australia as its home beer market shrinks. Last week, it sealed a A$910 million deal to buy milk co-operative Dairy Farmers through National Foods.
It committed to put up A$3.76 billion in cash to help Lion Nathan fund the bid, buying new shares in Lion Nathan at A$11.50 a share, a 32% premium to Lion Nathan’s last trade.
Under Lion Nathan’s proposal, Coca-Cola Amatil shareholders would receive A$6.15 in cash plus 0.469 Lion shares for each Coca-Cola Amatil share, which, based on last Friday’s close, valued CC Amatil at A$10.35 a share.
It has lined up A$800 million in debt funding to help cover the cash portion of the deal.