Posts Tagged ‘Lion Nathan’

My bro does the hard work for me

June 20, 2012

I was in the process of drafting a post about the recently announced Lion Nathan/Kirin takeover of Little World (the folks who brew Little Creatures and White Rabbit), but my little brother meet me to it.  So head to his always entertaining and insightful blog and read about it: It’s a Little World after all

… OK, now that you’re back, I would add that this was a nice “long play” by Lion Nathan/Kirin given they had a ‘blocking’ shareholding in this growing firm from the outset (20% on formation, 35% since the IPO in 2005). This meant no rival brewer (i.e. Fosters, Coca Cola Amatil or Coopers) was going to get hold of this prospect without Lion getting a ‘right of reply’.

It was a very sensible ‘option’ to have taken on what has turned out to the most successful craftbrewer in Australia in terms of growth and brand awareness (Little World pitched themselves as the 5th biggest Aussie brewer in this document).

Lion does have a history with acquisitions of microbrewers, taking over Hahn back in 1993 (see here for a decent description of that move), which has evolved into James Squire.

And, Lion Nathan failed in a bid for Coopers a few years ago.

I agree with Leon that the biggest ‘kick’ that’ll come from this acquisition will be much greater reach for Little Creatures beers.  I would not be surprised to see the brand become a real challenger to Coopers in the medium-term (and wallop SAB Miller’s/Matilda Bay’s Fat Yak along the way).

And, meanwhile,the Casella/Yellowtail beer (that I mentioned back here) is finally on the shelves, and the winemakers are talking very ambitiously (their brewery reportedly has the capacity to service 7% of the Aussie market – that’s more than Coopers!).

Maybe even macro-brewing might get interesting in Australia in the coming couple of years.

 

Dueling Duopolists, or, who should we cheer for when bullies battle?

March 24, 2011

The Aussie news headlines have been buzzing in recent days with the competing cries of our embattled brewers and the ‘on the side of the consumer’ supermarket giants, over an alleged effort by the latter to sell the majors’ beers as ‘loss leaders’.  See here and here for a reasonable summary.

This is the latest staple product to get this sort of a run (after milk and petrol) as Woolworths and the revitalised Coles (as part of Wesfarmers) engage in some much-missed competition.  Of course, it isn’t competition via ‘across the board’ price cuts, but, rather, through trying to switch buying preferences from one chain to the other (utilising the grocer’s associated liquor chains).

And poor old Foster’s (and presumably the much quieter Lion Nathan) are worried that this (alleged) predatory pricing will hurt their margins, and those of independent liquor retailers.

The reality of all this is that we’re talking about two pairs of behemoths locking horns, and competition here is a very different beast to that envisaged in perfect markets.  Look at the numbers:

– Foster’s (48% market share) and Lion Nathan (44%) amount to 92 percent of the Aussie beer market

– Woolworths and Coles/Wesfarmers amount to roughly 50% of the Aussie liquor retailing market (with most other sales through small, independent retailers)

– Woolworths (around 40%) and Coles/Wesfarmers  (around 35%) amount to roughly 75% of the Aussie grocery market

Those are the sort of market shares we called oligopolistic, or indeed duopolistic, with competition often reaching a calm equilibrium through effective price signalling and/or maintenance of market share.

Foster’s are kicking and screaming, however, due to concerns about the buying power of the two retail giants. Now, if Foster’s had a significant retail arm it might be able to curb such a threat (and earn more of those nice rents from the duopoly power).

But back in 2003 the brewer sold off Australian Liquor and Hospitality Group (ALH), which operated 131 hotels and 109 bottle shops. ALH now runs 285 licensed venues and over 450 retail liquor outlets.  And guess who now owns 75% ALH… Woolworths.  It seems Foster’s handed Woolworths the stick it is now being beaten with.

There’s talk that this behaviour will all come under the scrutiny of some eagle-eyed politicians in Canberra in the coming weeks.  Now, we’d hope they know a lot about duopolies (i.e. systems with two powerful parties)…

Fosters’ splitting headache

May 27, 2010

In one of the least surprising and most long awaited shock announcements, Foster’s is to split into two separately listed beer and wine businesses.

This pretty much brings to an end the financial carnage emanating from Foster’s purchase of Southcorp Wines for $3.7b back in 2005. This was a classic case of overestimating synergies (and commitment bias, whereby the firm paid $400m than their initial offer rather than walk away from the deal). The firm’s original estimates were for $270m-300m in efficiency gains within the first three years.  These never seem to have eventuated, and the firm got hit with a further whammy in terms of the Aussie dollar heading in the wrong direction (and rendering the export business much less competitive).  The firm has written down a huge chunk of the value of it’s wine assets (including another $1.1b yesterday).

One valuation has put the value of the wine business at around $2.1b – which isn’t a great outcome given Foster’s also bought Berringer Wines for $2.5b back in 2000. The devaluation is no shock given the glut in grapes and weaking competitiveness of Aussie plonk.

So much for diversification reducing risk!

What will be fascinating is what happens to Foster’s Beer Arm when this split finally comes to fruition. The Aussie beer market is a very appealing, low risk, consistent margin market (at least for the two big players).  It is very possible we’re going to see Foster’s under the acquisition microscope, with almost every big brewer other than Kirin (who own Lion Nathan) possible suitors.

As I’ve said before, Moors Colson, SAB Miller and Anheuser-Busch Inbev could all squeeze Fosters’ into their global portfolios quite nicely.  Asahi may also want access to the profit taps of their Japanese rival (and presumably won’t cop too much grief from the regulators about their existing soft-drink assets down under).

The dark horse in all this might still be Coca Cola Amatil, although their announcement this week that their young Aussie beer business is in the red might reduce their enthusiasm.

Interesting times indeed.

More froth in Aussie beer market

April 23, 2009

It’s been pretty quiet around here (and out there in the real world) on the beer business discussions. You might remember the excitement earlier this year about a possible shake-up on the Australian scene. Lion Nathan were chasing Coca Cola Amatil, and Japanese brewer and soft drink maker Asahi was about to take over Schweppes. The latter did happen, while the former deal was scuppered.

kirin-beersNow it seems Lion Nathan’s major shareholder, Japan’s other big brewer Kirin, has had enough of minor shareholder status, and is seeking to take complete control of Australia’s second largest brewer. A cashed Kirin-run Lion Nathan could make for interesting times down under and hopefully even open warfare with Fosters. Unfortunately the Kirin stable of beers isn’t extensive, but they may at least get more aggressive in their pursuit of new consumers. It is also possible they will treat Australian/NZ as a cash cow as the pursue more faster growing markets in the Asian region (i.e. China).

Irrespective it’s nice to see some movement around the bar…

Whose shout is it again?

January 5, 2009

Here is a handy summary of the manoeuvring in the Australian drinks markets in recent months. The current offers on the table are:

– NZ brewer Lion Nathan (46% owned by Japanese brewer Kirin) pitching for Coca Cola Amatil (who bottle and distribute soft drinks and beers and are roughly 30% owned by US firm Coca Cola Company) (discussed earlier here).

– Japanese brewer Asahi bidding for the Aussie Schweppes business (but potentially scuppered by Coca Cola Company) (discussed earlier here).

The Asahi offer throws up the possibility that the firm may either expand its relationship with Aussie brewer Fosters’ or go head to head with them. The firm claims to be biding its time until Fosters’ sorts out whether it wants to stay in the wine business.

Meanwhile, a raft of potential international bidders remain on the horizon for Fosters’ beer business if they can dump the less profitable (and less stable) wine arm, including Moors Colson, SAB Miller, presumably the aggressive Anheuser-Busch Inbev or even Coca Cola Amatil (if they can survive the Lion Nathan bid).

This is well and truly a game of chess in terms of the moves and countermoves we are likely to see over the next 6 months. The wild cards in the pack are (i) the competition regulator in Australia (the ACCC), who might deem any one of these current proposals (or any move by Coca Cola Amatil) unacceptable on the basis that rivalry will be reduced,and (ii) the Foreign Investment Review Board could deem an international acquisition of Australian assets to be outside the national interest. The latter is extremely unlikely given the current level of international involvement.

It still remains very unclear whether if there are clear and valuable synergies here.

Are there genuine economies of scope between the distribution of soft-drinks and beer?

Fosters’ experience seems to indicate that the wine and beer don’t mix well, despite sharing the same retail outlets.

Why would we expect the non-alcoholic and alcoholic product lines to gel any more effectively?

Or, in the end, is this just a simple grab for a currently very profitable, oligopolistic Aussie beer market?