Wheels & Deals

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BREAKFAST DEALS: Beer wars

Michael Feller

Published 8:06 AM, 18 Sep 2009




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In the wake of Lion Nathan’s agreement to be bought by Kirin and amid Suntory’s discussions to acquire Orangina Schweppes, Japanese brewer Asahi may have little choice other than to bid for Foster’s Group in order to maintain parity with its rivals. Elsewhere, Hershey’s engages a Buffett insider to look at Cadbury, Babcock & Brown Infrastructure is rumoured to have a new proposal on the table and RiskMetrics slams Macquarie Airports’ internalisation proposal.

Lion Nathan and Foster’s Group

Shareholders in trans-Tasman beverages group Lion Nathan have voted overwhelmingly in favour of a takeover from Japanese brewing giant Kirin. The $3.4 billion deal will give Kirin control of the 50 per cent of the company it does not already own. Kirin recently bought National Foods and will combine it with Lion to create Lion Nathan National Foods Pty Ltd. Market watchers now wonder if and when Kirin's perennial rival Asahi Breweries will make a bid for Foster's Group, Lion's major rival in Australia and the country's biggest brewer. Asahi used to hold a 19.9 per cent stake in Elders IXL, which later became Foster's, and the companies still have a licensing agreement. Asahi, which also owns Schweppes in Australia, is otherwise speculated to be interested in the European franchise of Schweppes, Orangina Schweppes, which is owned by private equity firms Blackstone Group and Lion Capital. Orangina Schweppes’s owners have otherwise confirmed they are in sales talks with Suntory, yet another Japanese beverages group. Suntory, which also happens to be in slowly-progressing merger discussions with the much larger Kirin, has been buying up small additions to its portfolio of brands, ranging from soft drinks to whisky to beer. Japan’s beverages sector is desperate to find growth outside its, er, saturated market and Australia has been seen as a key target market, being rich and developed, though with a growing population keen to experiment with new flavours and beverages. By contrast, Japan has an enormous array of beverage choices, resulting in high competition and low margins. What this all means is that Foster’s remains a compelling target. Suntory is unlikely to cede Orangina Schweppes to Asahi and Asahi is unlikely to sit and watch its rivals expand in size and strength.

Cadbury

Elsewhere, the old partner of Schweppes, chocolate maker Cadbury, is allegedly in the sights of yet another predator, Hershey’s. Cadbury was made a takeover offer from global processed foods giant Kraft earlier this month but rejected it on valuation grounds. Kraft was especially keen to use Cadbury’s footprint in the Indian subcontinent to expand its presence there. The Wall Street Journal has reported that Hershey's has hired Goldman Sachs banker Byron Trott and boutique advisory shop Watch Hill Partners to advise on a possible bid for Cadbury. It was earlier reported that JPMorgan had been engaged by the American chocolate maker for the same reason. Interestingly, Trott is Warren Buffett’s favourite investment banker and Buffett is a major shareholder in Kraft. Buffett for one has largely stayed out of the food fight, but did say this week that Kraft had "a lot to do" to justify its $US16 billion offer price. Like the beverages sector, processed food makers have been consolidating in an environment of increased competition from emerging market players and increasingly globalised supply chains. Buffett has played this game well. Last year he advanced Mars $US6.5 billion to help purchase Wm Wrigley Jr Company, the maker of Wrigley's chewing gum.

Babcock & Brown Infrastructure

A letter sent to directors of Babcock & Brown Infrastructure suggests that eight global investors are joining forces to offer a rescue package to the beleaguered ports and infrastructure investor, according to The Australian. The so-called Bumblebee Recapitalisation Proposal, involves an $800 million capital injection and a $350 million bank facility and the Ozsays it is $500 million better than a current proposal on the table, believed to be from Canada’s Brookfield Asset Management. The AFR meanwhile reports that the Brookfield proposal gives the fund manager first right of refusal over any asset sale and involves a $600 million capital injection. Brookfield is also a major investor in the Multiplex Prime Property Fund, which has obtained an interim order from the Takeovers Panel to prevent Gen-Y entrepreneur Nicholas Bolton from requisitioning a unitholders' meeting to vote on an unconditional 3 cent per unit takeover offer. Bolton, we should mention, is also a significant investor in MMC Contrarian, the fund that recently rejected a takeover offer from a corporate raider of a different ilk, Sir Ron Brierley of the Guinness Peat Group. Guinness Peat, a 30 per cent shareholder, offered MMC investors 48 cents per share. It is not believed that Bolton, who owns 5.5 per cent, will make an offer, or at least not the type of offer that he’s made in the past for Multiplex Prime or, more controversially, the Brisconnections Unit Trust.

Macquarie Airports

Elsewhere in the exciting world of infrastructure funds, RiskMetrics, the shareholder and corporate governance advisor, has recommended that investors in Macquarie Airports reject the fund's controversial proposal to buy Macquarie Group's management rights for $345 million. RiskMetrics said the current proposal could risk $4 billion in Macquarie loans or attract an estimated $120 million in additional fees. Macquarie lends to MAp but its loan agreement contains certain change of control conditions. The proposal has nevertheless been recommended by independent experts KPMG Corporate Finance and MAp's advisers at Grant Samuel and Allens Arthur Robinson. It should be noted that fellow silver doughnut Macquarie Media is working out an internalisation proposal of its own.

Wrapping up

Elsewhere, Arafura Resources shareholders have voted in favour of giving East China Mineral Exploration & Development Bureau a 25 per cent stake in the rare earths explorer for $23 million. The deal comes as speculation heats up on the fate of Lynas Corporation's deal with another Chinese investor. Also on the China front, privately-owned commodities trader Glencore International has reportedly signed a cooperation and non-aggression pact with China Investment Corporation, the $US200 billion sovereign wealth fund. The two firms may cooperate on derivatives trading, sources told Reuters. Metallurgical Corporation of China has meanwhile raised $US2.34 billion in Hong Kong's biggest initial public offering of 2009. The IPO was priced at the lower end of expectations, but nevertheless comes straight after a $US5.12 billion raise for MCC in Shanghai last week. MCC has a number of projects in Australia. Following China State Construction Engineering Corporation's $US7.3 billion offer earlier this year and another IPO yesterday for Sinopharm, China's biggest drug products distributor, analysts are now talking of an IPO glut. In Deals TV a little later this morning we’ll have more stories from Australia and around the world, including:
·        Mosaic Oil
·        Linc Energy
·        Xstrata
·        Fairfax
... and lots more.


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