Lion will play waiting game on Montana bid

A valuation of the target's shares is exaggerated, the brewer tells DITA DE BONI

Lion Nathan says it will sit tight and wait for Montana Group to prove its shares are worth the $4.16 to $4.64 value PricewaterhouseCoopers put on the company this week.

Lion's Sydney headquarters adopted that stance after Montana's independent directors rebuffed its $3.20 to $3.80 bid for the group.

The brewer described PricewaterhouseCoopers' valuation as highly ambitious.

Lion was set to stand in the market yesterday but did not because Montana's share price surpassed the upper end of its bid.

The share price closed at a high for the year of $4.05 on Thursday night before dropping to $3.95 yesterday evening.

Masfen Holdings, representing Montana chairman Peter Masfen, has made a similar bid but cannot start buying until December 27.

Lion's chief financial officer, Paul Lockey, said yesterday that his firm's offer would remain unchanged.

He said the mid point of the independent appraisal range - $4.40 - was 14 times the company's current financial year pre-tax earnings and 40 per cent ahead of Australasian comparisons and historic multiples.

"For the sort of value to be attributed to a share in Montana in the report, the growth rate and margins would have to be substantially better than its industry peers," Mr Lockey said.

"[Those] peers are in fact increasing their rate of capital expenditure and increasing their sales and marketing spend.

"No such increases are included in the Montana forecasts."

Mr Lockey said the valuation had not taken into account factors such as consolidation of the liquor industry and the retailing scene, as well as global competition from other wine-producing companies.

"These are serious misgivings. The independent directors have used the ambitious forecasts as a basis for recommending against [our] bid.

"We now expect the full Montana board and management to commit to delivering these forecasts."

He said any discord that could emerge between Montana and Lion, which sat on the company's board as a result of its 28.27 per cent shareholding, would not be uncomfortable for the brewer, "but others might find it a bit uncomfortable."

"It's just business as usual. We will wait for the share price to fall. One option we have is to announce that we will change our price range, but we are not interested."

The brewer has one ally in Clyde D'Souza of Salomon Smith Barney, who agrees that the independent evaluation of Montana is ambitious.

His discounted cashflow valuation is $3.20 a share, 23 per cent below the lower end of the independent valuation.

He includes in his forecasts a lower level of synergy benefits from Montana's acquisition of Corbans Wines, and capital expenditure around $5 million a year higher than that pegged by PricewaterhouseCoopers.