Lion's Independent purchase 'wouldn't hurt competition'

DB Breweries and the power of the international drinks giants should keep brewer Lion Nathan in check should it buy the late Michael Erceg's Independent Liquor, the Commerce Commission says.

Releasing details of its approval of the proposed takeover, the commission said yesterday that a successful bid by Lion would not result in a substantial lessening of competition in Independent's key markets - ready-to-drink alcopops (such as the one pictured), spirits and beer.

The decision - disclosed in August - was contrary to early expectations that Lion would have to sell the beer operations because of its already strong half share of the market.

However, the commission said DB, with just under 40 per cent, would remain a strong competitor.

"Although there are smaller competitors in this market, notably Foster's, micro-breweries and exclusive imports, these competitors would provide only a limited constraint on the combined entity," the commission said.

"DB has an established presence in the market and is not constrained by capacity.

"DB would provide sufficient constraint to any attempt by the combined entity to exercise market power."

Lion Nathan is competing with up to six bidders for Independent, put up for sale after Erceg was killed in a helicopter accident last November.

But the brewer is regarded as the strongest contender. Others include Foster's and Australia's Coca-Cola Amatil as well as private equity fund Pacific Equity Partners.

Talk of offers between $750 million and $1 billion has emerged.

The exact offers are said to be heavily dependent on bidders' views on the likelihood of Independent achieving a forecast rise in trading profit from $105 million this year to $120 million next year.

Lion's shares last night closed down 5c at $9.40.

The acquisition would lift Lion's share of the New Zealand RTD market from around 18 per cent to as high as 83 per cent and would give it a foothold in Australia, where Independent has a 30 per cent share.

The commission said Lion would benefit from the expansion of its RTD range. But the gain was not sufficient to amount to a barrier to expansion of other suppliers.

"The commission considers, due to the ease of supply of RTDs and the ease with which existing competitors can expand their distribution networks, there is unlikely to be any significant difference in the supply of RTDs [on the market]."

In the year to September last year, Independent raised its revenue to A$202 million but suffered a drop in profit from A$16.12 million to A$16.05 million.

Lion is now awaiting approval from the Australian Competition and Consumer Commission.