Coca-Cola Amatil CEO dismissive of “flawed” Lion Nathan bid

Posted by Daniel Palmer on 21st November 2008

Coca-Cola Amatil (CCA) Chief Executive Terry Davis is not likely to change his mind about the current $7.6b takeover bid tabled by Lion Nathan, believing it to be “half-baked”. He has left the door open to a deal, however, with the right conditions.

CCA told shareholders on Monday that Lion Nathan had launched an unsolicited takeover bid for Australia’s largest bottler of soft drinks, in an endeavour to create Australia’s largest beverage company. Coca-Cola Amatil informed shareholders later that afternoon that they would no longer consider the deal as they believed it undervalued the company.

The deal did not have the support of the major shareholder in CCA – The Coca-Cola Company –  who considered the bid to be unattractive in its current state. Though, they may offer their support if a number of conditions were to be satisfied.

“As a consequence of the (lack of support from The Coca-Cola Company), a number of material deficiencies in the Proposal, and the highly conditional nature of the Proposal, the Board of CCA has decided not to progress any further review of the Proposal and has advised Lion accordingly,” CCA concluded in a statement.

Mr Davis has since told The Australian Finanical Review that he was not against the idea of a merger, but considers the current deal to have fundamental flaws. The bid undervalues the company, he argued, and could hurt CCA shareholders, as Lion Nathan’s major shareholder – Kirin Holdings – might redirect management talent at CCA to National Foods, their fully-owned dairy business in Australia.

“We can’t have a scenario where the major shareholder goes and takes all the intellectual property that we’ve built up over many, many years at CCA and then have it made available – because of the transfer of people, the transfer of business processes and business best practice – to its major competitors,” Mr Davis said. “Sure, if they sold Dairy Farmers and they sold Berri, then that would be one of the issues resolved.”

He suggested the competition regulator, the ACCC, may take issue with any deal. Coca-Cola Amatil failed to acquire juice maker Berri in 2003 due to ACCC concerns and National Foods – a Kirin subsidiary – now owns Berri. As such, the competition regulator may not be keen on the Lion Nathan offer, despite the fact that Lion Nathan’s business is kept separate to that of National Foods and it is not wholly-owned by Kirin (they have a 46% stake).

If a deal is struck it would create an $11b Australian beverage leader. Lion Nathan, Australia’s second largest brewer, includes the Tooheys, Hahn, XXXX, Heineken and Bacardi brands amongst its range for distribution in Australia. While CCA, sells the Coca-Cola, Mother and Powerade brands, as well as operating fruit and vegetable processor SPC Ardmona.