Lion Nathan responds to Coca-Cola Amatil speculation

Posted by Daniel Palmer on 17th November 2008

Lion Nathan Limited has confirmed that it is in discussions with Coca-Cola Amatil Limited (CCA) regarding a potential combination of the two companies, which would result in Lion Nathan acquiring all of the issued shares in CCA.

The announcement was made just before midday, after they had earlier asked for a trading halt to be placed on their shares until an announcement was made.

The proposed combination would create the leading Australian and New Zealand beverage company, with a diversified portfolio comprising of brands spanning almost all drinking sectors including beer, soft drinks, spirits and fine wine. The brands sold by the company would include Coca-Cola, Heineken, XXXX, Hahn and Mother, as well as SPC Ardmona.

“Lion Nathan believes the proposed combination would create significant benefits for shareholders of CCA and Lion Nathan, as well as other partners including The Coca-Cola Company,” they advised in a statement. “Lion Nathan intends to maintain separate alcoholic and non-alcoholic beverage businesses to ensure that the growth momentum of the respective businesses can be continued (including in respect of The Coca-Cola Company brands) and as such Lion Nathan would seek to retain CCA’s key operational management.”

Coca-Cola Amatil released a statement earlier this morning outlining their concern about the offer having a number of “material deficiencies”. “In particular, the pricing multiple proposed is materially below recent multiples paid for domestic and international beverage companies and the CCA Board can give no assurance that the Proposal will proceed or be supported by the CCA Board or its major supplier, The Coca-Cola Company,” CCA advised.

The Proposal, supported by their major shareholder – Kirin Holdings, would involve the current Chairman and CEO of Lion Nathan leading the combined group and ensure two CCA non-executive directors will be offered non-executive board seats in Lion Nathan.

Lion Nathan reports that the proposed offer consideration is $6.15 in cash plus 0.469 Lion Nathan ordinary shares per CCA share, which implies a total equity value for CCA of approximately $8.0 billion (including share options), with a ‘consideration mix’ of approximately $4.5 billion of cash and approximately 346 million Lion Nathan ordinary shares.

A combination is expected to realise synergy benefits in a range of $100 to $130 million per annum (on a pro-forma basis), according to Lion Nathan.

If the proposed merger is successfully completed, Kirin’s shareholding in Lion Nathan will rise 47.5%, up from 46.1%. It is also intended that the merged entity continues to be run as an Australian business, with the majority of the board of directors being independent.

“The merger would require the approval of a range of regulatory authorities including the ACCC, the NZCC, the FIRB, and would be subject to other customary conditions for a transaction of this nature,” Lion Nathan noted. “It will also require the support of both Lion Nathan shareholders (in relation to the placement) and CCA shareholders (in relation to the scheme of arrangement) in separate shareholder meetings.”