Interlopers put heat on airline and beer barons

By GILES PARKINSON

Sydney view


Two of Australia's most prominent duopolies are about to taste serious competition.

It has happened before to one of the duopolies, the domestic aviation market dominated by Qantas and Ansett, but it will be a new experience for the beer barons, Foster's Brewing Group and the Japanese-Kiwi concern Lion Nathan.

Last week, the Philippines brewing group San Miguel announced a $A92 million friendly bid for the Tasmanian-based brewer of premium beer, J. Boag & Son.

It is a sudden change of pace for Boag's chairman, chief executive and major shareholder Philip Adkins, who had hitherto disregarded both Tasmania's position in the world and the limitations of Boag's balance sheet.

In 1998, Boag made a short, leveraged buy-out offer for Lion Nathan, probably out of spite because the brewer does not seem to be his favourite competitor.

Just last month, Mr Adkins boldly announced that Boag would bid for the brewing assets of Britain's Bass, which were worth $5 billion - a mere 100 times the value of his own company. Perhaps Mr Adkins, a colourful US-born former investment banker, was trying to seek attention. If so, he was successful.

San Miguel has come in with an offer a healthy 80 per cent above Boag's recent trading price. It was so good that Mr Adkins has already sold nearly a third of his stake and Rothschilds Asset Management has done the same.

Other people certainly think it was generous. Boag is so small that it does not attract the attention of any Australian analysts, but analysts in San Miguel's home town of Manila thought it looked steep.

The saving grace is that it is such a small sum for San Miguel and the purchase of Boag does offer potential. It is a leg-in to the Australian market, where San Miguel has high hopes for its own brands such as Pale Pilsen.

San Miguel said Boag would give it access to a distribution system to market its beer brands in Australia, and allow it to sell Boag's beer in Asia-Pacific.

That will give some food for thought for Foster's and Lion Nathan. The cost of fighting off a big competitor can be damaging.

Boag is not yet a major threat to its brands, but San Miguel has deep pockets. Already, it is tackling Foster's on its home turf and sponsors top horse races.

The duopolists may find Mr Adkins a noisier and more threatening pest in the years to come.

Qantas and Ansett already know the pain of new competition, and remember it as being more than a pain in the butt. It was a big red blob on the profit and loss account.

The two airlines fought off the incursions of Compass I and Compass II in the 1990s, but that was mostly due to leaky business plans from the start-up airlines.

Impulse and Virgin threaten to be different. Impulse, an established regional operator, will have noted the mistakes of its forerunners. It seems to have solved those by locking in deep-pocketed backers of its own, including AMP.

Virgin, by the nature of the business and the man behind it, Sir Richard Branson, is making a lot of noise and little else, but that does not seem to matter to Australian investors.

Qantas shares have never quite recovered from the initial fanfare of Sir Richard's first visit to announce his new enterprise. Most people thought that, like Mr Adkins, he would seek to piggy-back off the resources of another group or investor, but so far the most likely, Singapore Airlines, seems committed to buying into Air New Zealand/Ansett and protecting that investment.

That may well save Qantas and Ansett the pain of having a four-way battle for market share on trunk routes. But the threat of just one newcomer can cause enough damage, without the threat of Sir Richard Branson backed by San Miguel.

* Giles Parkinson is deputy editor of the Australian Financial Review.