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The insatiable appetite of Australian private equity funds has pushed the price tag for Independent Liquor beyond all expectations as the bidding war comes to a head.
Australasian brewing giant Lion Nathan yesterday confirmed it had withdrawn from the sale process, saying it could not justify paying the prices being talked about by the remaining contenders.
It is understood two private equity players have pushed the price for the drinks empire - founded by the late Michael Erceg - well above analyst valuations of $1 billion.
Independent - which controls about 70 per cent of the New Zealand "ready to drink" market - could now fetch as much as $1.3 billion, the Australian Financial Review has reported.
The paper said Lion dropped out at $1.15 billion, although sources close to the deal said that figure was a little high.
Yesterday the two remaining bidders were understood to be CCMP Capital and a joint venture between Nikko Principal Investment and Pacific Equity Partners (PEP). But last night it seemed the price had become too hot even for Nikko, with reports saying it had also dropped out of the bidding, leaving PEP to battle it out with CCMP Capital alone.
It is understood Asia Pacific Breweries withdrew from the process last week without making a bid.
The failure of any established drinks player to snare Independent threw an element of uncertainty into the market because private equity owners would be less predictable, one source said.
Lion was considered a front-runner in the auction because it has such a well-established distribution business in the region and had the potential to make big gains by integrating Independent's operations with its own.
In the end the decision appears to have been an easy one for the brewer.
"We undertook a rigorous valuation exercise on Independent's business operations and brands to determine what they were worth to our business," Lion Nathan chief executive Rob Murray said.
"Our focus is very much on adding value to Lion Nathan shareholders and our judgment was that an acquisition above our offer price would not achieve that."
Investment bank UBS, which is acting on behalf of the late Michael Erceg's widow Lyn, did not comment yesterday. Lion said it would continue to develop its own RTD brands in Australia and New Zealand.
It had raised its marketing investment in 2006 and, with additional investment in spirits and RTDs in 2007, was well placed to take its earnings growth to a "higher, sustainable rate from 2008", Murray said.
It is understood that DB will follow a similar strategy.
Lion shares closed down A17c at A$7.93 on the ASX yesterday. However, an A20c fall was expected as the shares went ex-dividend.
