The dogfight over Montana

One of the biggest corporate dogfights of the past decade may soon be over. DITA DE BONI outlines the takeover plays and likely winner as liquor giants Lion and Allied slug it out for Montana.

Sixteen months after the fight for control of winemaker Montana Group began, the bidders are staring each other down minutes before the final whistle.

Brewer Lion Nathan, holding 44 per cent of the company despite being tripped up on almost every legal challenge in the past six months, heads to the end of the game with a clear advantage.

It needs just 7 per cent to gain control of the winemaker and this week is expected to put a bid on the table to buy all of the firm.

Allied Domecq, with just 27 per cent, has had plenty of moral victories along the way, but looks likely to lose its quest to gain all of Montana. Its $4.80 a share bid has been on the table for a while, but shareholders have so far been unable to compare the Lion and Allied bids side-by-side.

Now it seems the contest will be decided within a fortnight. Either way, New Zealand's leading winemaker will be in foreign hands.

The battle has already cost several million over and above the cost of buying Montana shares. This is how it has played out so far:

Last year

April: The Business Herald reports that Australian liquor conglomerate Foster's, a bitter rival of Lion Nathan, is talking with Montana Wines about a buyout.

Lion holds an urgent meeting to decide how to keep Foster's away from Montana's local distribution channels and decides to buy into the winemaker itself.

May: Lion acquires 19.9 per cent of Montana at $2.30 a share on the market, which upsets Montana directors who suspect Lion will gain control of the company at a steal.

September: Lion now owns 28.3 per cent. Montana buys Corbans Wines off brewer DB Group for $151 million, raising its value and market share considerably.

December: Lion says it will bid for 51 per cent (or control) of Montana for between $3.20 and $3.80 a share, which prompts Montana chairman Peter Masfen to make an identical bid. But where will he raise the estimated $253 million?

Meanwhile, an independent report suggests the company is worth $4.16 to $4.64 a share - almost 100 per cent more than the average trading price of Montana shares before the takeover talk started.

This year

February 8: British company Allied Domecq enters the fray with a $4.40 a share bid for all of Montana.

Later that day, Lion trumps the bid with a part-offer for 51 per cent of Montana at between $4.65 and $4.80, gaining permission from the Stock Exchange to avoid the mandatory two-day pause period.

Commentators and analysts are gobsmacked at the waiver.

February 9: Lion has raised its stake to just over 46 per cent, paying $4.65 a share to mostly institutional shareholders.

On February 13, that stake goes to 51 per cent - Lion bigwigs have a glass of Montana wine to celebrate.

STATE OF PLAY: Allied has barely stuck its nose in, but is already quietly stubborn about gaining Montana.

Yet Lion is clearly victorious at this stage, talking about more seats on the board and trying to allay fears that it will interfere too much with the winemaker's well-regarded management.

February 22: Lion hits a snag when it is revealed that in the haste to buy Montana shares on February 9, its brokers Credit Suisse First Boston may have made binding agreements with sellers before the starter's gun at midnight.

An associate of Mr Masfen was supposedly contacted early on to sell his shares to Lion and immediately rang Mr Masfen to dob in the brewer.

Allied quickly files a complaint with the Stock Exchange.

May: Both Lion and Allied say they want 100 per cent. A ruling on Lion's alleged breach is not due until June.

Allied ends the month with 26.8 per cent of Montana, including Mr Masfen's 20 per cent stake, bought for $202 million. Lion creeps to 62 per cent.

June 5: The standing committee finds Lion a "defaulter", saying it bought about 10 per cent of Montana before it was allowed to on the night of February 8. This means the Montana independent directors can strip Lion of its entire 62 per cent stake should they so decide.

STATE OF PLAY: Bad for Lion. Technically Credit Suisse broke the rules by scouting for sellers too early on that fateful night in February, but now the entire stake in Montana - which Lion has paid about $600 million for so far - is in jeopardy.

Obviously, the ruling "delights" Allied.

June 15: Lion swipes back, saying Allied broke rules when it bought Mr Masfen's 20 per cent stake.

June 29: The standing committee orders Lion to sell 19 per cent of its stake to unrelated parties within 30 days.

Meanwhile, Allied tries to sneak through an "irrevocable promise" to buy shares under the old takeovers rules, which will disappear on July 1.

July 1: The newly empowered Takeovers Panel censures Allied for that "promise" by banning it from buying shares under the old rules.

July 2: Both Allied and Lion say they will make new bids under the new rules.

Allied offers $4.80; Lion proposes a "two-tiered" offer in which it will pay $5.50 for 11 per cent of Montana and $3.70 for the rest.

Under the new rules, either company must make it to 51 per cent to see its offer through to completion.

July 5: Allied complains once more to authorities that Lion's offer will prove too tempting to potential buyers of the 19 per cent that Lion has been ordered to sell - a possible breach of the rule that Lion must sell to unrelated parties.

July 16: The Takeovers Panel says the two-tiered offer is a no-go, because documents advertising the offer appear to link the tiers together.

Under the new Takeovers Code, partial offers - for example, offering to buy 11 per cent from everyone's shares - are allowed, but a single offer that looks suspiciously like two offers is not.

The standing committee also vetoes the two-tiered bid.

Lion is forced to withdraw the offer but is still intent on taking control.

STATE OF PLAY: Analysts point out that Allied's offer is clearly better ($4.80) but investors hold out to see if the brewer will rip open its coffers in a last-ditch effort to outbid its rival.

By holding out, they give Lion some time to win support from the market.

Lion also still has a lead on its rival (44 to 27 per cent) and lawyers for both parties are studying the rules inside out.

By this stage the independent directors of Montana are reportedly going barmy figuring out how to keep shareholders - only a small number by now - informed of all their options.

August 2: Lion goes to the High Court challenging all standing committee decisions against it. The brewer also asks for more time to sell the 19 per cent.

The 30-day limit allows Lion to manage the sale and it intends to keep any shares out of Allied's hands.

If it cannot complete the sale on time, Montana Group becomes the seller and looks favourably upon Allied's offer.

August 6: Montana posts a lower-than-expected profit for the year to June - $25.8 million.

August 13: The High Court declines to allow Lion more time to sell its 19 per cent, and says the challenge to standing committee findings is basically groundless.

August 15: Lion abandons its legal case and begins an urgent sell-down. As Montana shares rise to about $4.75 each, Allied complains that Lion is breaking the rules by selling to friendly parties.

August 17: The Stock Exchange throws out Allied's complaint. Lion says its next bid will be for 100 per cent of Montana.

Yesterday: No word from Lion yet. A new bid is expected this week.

LATEST STATE OF PLAY: Shareholders can sell to Allied for $4.80 a share or wait two weeks and sell to Lion at the new offer.

Lion does not need much to gain control. Allied must gain most of the 8 per cent held by institutions or the public and at least three-quarters of the 19 per cent sold by Lion as default securities - and that is assuming Lion does not come back with an higher offer than Allied's $4.80.

Under the Takeovers Code, if neither party can gain control, they must give back shares bought recently, so there will be a clear victor if more legal cases are not launched. Either way, the winner will probably fold Montana into its own business, depriving the market of one of the star performing stocks of the last year.

RULES OF THE GAME

Notice and pause:

Anyone wanting to buy or sell a substantial number of shares must give notice to the Stock Exchange before acting. The same rule applies if a bid is changed.

For Lion, as an "insider" with connections to Montana, there was a mandatory pause of two days - but the Stock Exchange chose to waive this.

The Takeovers Code:

Essentially the rule book, which was changed halfway through the game. The changes, which predated the Montana battle, were designed to ensure small shareholders got equal treatment.

The old law allowed buyers to make different offers to different parties.

But under the new code, a shareholder who wants to go above 20 per cent has to make a written pro rata offer to all shareholders and achieve a minimum holding of 50 per cent.

If the bidder does not reach 50 per cent, it has to return all the shares received under the offer to the original shareholders.

Between 50 and 90 per cent, the controlling shareholder can acquire shares up to a maximum of 5 per cent a year.

Otherwise it has to make a full takeover offer.

THE PERSONALITIES

Jane Mussared: Director of corporate affairs, Allied Domecq. Ms Mussared is the one-woman band representing Allied in New Zealand. She has spent large chunks of the past six months stationed at the Quay West Hotel, beating off journalists with a stick and helping to plot Allied's every move to win control of Montana. A native Aussie, Ms Mussared approaches rival Lion - and errant journalists - with purse-lipped disapproval and is the consummate cheerleader for her side.

Malcolm Turnbull: Managing director of Goldman Sachs Australia, adviser to Allied. Mr Turnbull has kept a low profile in New Zealand, except for sweeping into the High Court in flamboyant fashion and casting smouldering glances at his relatively staid-looking Kiwi legal counterparts. Mr Turnbull - Rhodes scholar, lawyer, journalist - is worth a cool $A90 million ($109 million).

Warwick Bryan: Investor relations director at Lion Nathan. The oft-quoted spokesman is the gentler face of his testosterone-driven, "naughty boy" employer. Always pursued by at least 30 journalists, Mr Bryan has handled constant media attention with aplomb despite suffering a variety of overwork-related illnesses throughout, including whooping cough. Because Lion landed itself in hot water with some fairly cocky announcements, Mr Bryan has noticeably curbed his comments as the battle drags on.

Bill Foster: Managing director of the NZ Stock Exchange. The stoush for control of Montana has been - especially early on - characterised by criticisms of lax and badly enforced regulations that have allowed all manner of dodgy manoeuvrings. In response, Mr Foster and his lieutenants are working to clean up the "wild, wild west" reputation of the bourse.

THE PLAYERS

Montana Group: New Zealand's largest winemaker, which bought the country's second-largest winemaker, Corbans, last year and now commands roughly 60 per cent of the domestic market. The company is worth about $1 billion; its wine brands include Lindauer, Deutz, Church Road and Brancott Estate. Its shares are considered to be overvalued, thanks to the continuing stoush.

Allied Domecq: Bristol-based liquor conglomerate worth $6.3 billion and the world's second-largest spirits company, owning brands such as Beefeater Gin, Kahlua and the Dunkin' Donuts chain, to name a few. Allied Domecq has 27 per cent of Montana and is fighting for control of the company to add to its growing wine portfolio. Described as a "whinging Pom" by some Australian papers, because of its continual challenges to rival Lion Nathan's actions.

Lion Nathan: Formerly New Zealand-owned but now Sydney-based and Japanese-controlled brewer, worth about $2.8 billion, No 2 brewer in Australasia behind Foster's. Brands include Steinlager, Tooheys, XXXX and Hahn. Lion has 44 per cent of Montana, and is battling to get to 51 per cent of the company. It sees wine as a necessary source of growth for the company as beer markets flatten out. Often painted as a corporate naughty boy.

Peter Masfen: Clam-like Montana Group chairman who helped to build it from a tiny company in the 1960s to an international takeover target today. Mr Masfen owned about 20 per cent of Montana at the beginning of the battle (April last year) but has sold his stake to Allied Domecq, essentially giving Allied a huge leg-up in the stoush.

Montana independent directors:

Barry Neville-White, Bryan Mogridge, Peter Coote and Dr Hylton Le Grice have all slowly sold down their shareholdings in Montana as the battle dawdled along - it is thought they also favoured Allied. They give their opinions on all offers received. They were also originally responsible for deciding what punishment Lion was to receive for prematurely buying shares in Montana in February, but referred that decision to the market surveillance panel of the Stock Exchange, which in turn refers weighty decisions to the standing committee.

Standing committee: Bill Wilson, QC, retired Court of Appeal judge Sir Duncan McMullin and retired High Court judge Sir Ian Barker are brought together to review decisions when the independent directors cannot decide.

The standing committee has three times ruled against Lion. It first found that the company bought Montana shares prematurely in February, then ordered the brewer to sell 19 per cent of its stake as punishment, then decided Lion's planned sale of that 19 per cent in a controversial "two-tiered" bid was not kosher.

Takeovers Panel: When the new Takeovers Code came into being on July 1, the Takeovers Panel also took a look at some of the offers that had been tabled and found a few wanting. Headed (in this dispute) by lawyer David Jones, the panel has once stopped Allied Domecq bidding under old takeover rules, as well as deciding that Lion's two-tier offer was in breach of the new legislation.

Julian Miles, QC, and Alan Galbraith, QC: Charismatic lead lawyers for Allied and Lion Nathan respectively, these two gentlemen's submissions are reminiscent of weighty tomes delivered by Roman philosophers wearing togas. In fact, the learned counsellors have argued in the High Court over whether Lion would be allowed more time to sell its 19 per cent of Montana, and whether, indeed, Lion could challenge all rulings against it right from the beginning, to which High Court Justice Noel Anderson - who also reportedly likes a meaty debate - gave a resounding "no".