Lion's bid for drinks firm faces hiccups

Brewer Lion Nathan could find it problematic to get Commerce Commission clearance to buy Australasian ready-to-drink giant Independent Liquor, and a high-end price may make a purchase uneconomic, analysts say.

Australian-headquartered Lion has lodged a clearance application with the commission and a public version is expected to be published this week.

The move comes more than two months after Independent was formally put on the block, and Lion has been widely tipped as a potential bidder. Independent, a private company established by the late Michael Erceg, is seen as a potentially good vehicle through which Lion could expand into the Australian RTD (ready to drink) market.

Macquarie Research in Sydney believed Independent had just under 70 per cent of the RTD market in New Zealand, and was number 2 behind Diageo in Australia with about 18 per cent market share.

But the head of research at broker Forsyth Barr in Wellington, Rob Mercer, said it could be problematic for Lion to get commission blessing.

There would be overlap between Lion and Independent in both the RTD and spirits markets locally.

"Whenever you look at these acquisitions it comes down to the definition of the market," said Mercer.

It was possible Lion might only get the OK to buy certain parts of Independent. But Mercer questioned whether Independent could be too expensive for Lion - a price of between $700 million and $1.2 billion has been floated.

Paying towards the upper end of that range could be too pricey a way of enabling Lion to expand into RTDs in Australia, Mercer said.

"At the low end [of the range] you'd say that they should be able to bring some distribution benefits to help partially pay for the brand ... at the upper end it just looks a touch expensive."

Macquarie Research analyst Callum Bramah said his firm felt a price below $985 million to $1 billion would make the buy acceptable.

But it was difficult to be definitive in the absence of detailed Independent accounts.

Macquarie's belief, based on industry-sourced information, was that Independent made earnings before interest, tax, depreciation and amortisation (ebitda) of $109 million in Australia and New Zealand in the year to September 2005.

The current year's ebitda was estimated at $122 million.

Bramah said latest data suggested Independent's sales in Australia had fallen slightly recently. Lion should also examine whether Independent - which was not into heavy advertising - could be integrated into a more standard business model.

Lion Nathan's Sydney-based corporate affairs manager James Tait would not comment on pricing and stressed his company did not have enough information at present to decide whether it would make an offer.

An Independent statement said no decision had yet been made whether to sell the business and a range of options were being considered.

An industry source understood there were still many potential buyers but expressed surprise at the time it was taking to finalise one.

A commission spokeswoman said the time taken to process Lion's application would depend on its complexity. A decision is currently due on July 17 but this can be extended.

Lion Nathan's shares closed yesterday at $9.40 on the NZX, down 3c.