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Lion Nathan sells to Allied

By Phil Boeyen, ShareChat Business News Editor

Friday 24th August 2001

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Brewer Lion Nathan (NZSE: LNN) has announced it will sell its 43% stake in Montana (NZSE: MON) to rival bidder Allied Domecq.

The surprise turnaround from foe to friend comes after several months of wrangling between the two companies for control of the winemaker.

Lion Nathan says it will sell the stake at Allied's current market offer of $4.80 per share and the sale, together with its earlier sell down of 19% of Montana, will realise a pre tax profit of $127 million.

Lion Nathan CEO, Gordon Cairns, says the decision to sell is based on value.

"Despite our low initial entry price, we do not believe that we can create value for our shareholders by bidding over $4.80 for the balance of the company. However, exiting at this price does create significant value for Lion Nathan shareholders."

The brewer has explained the decision on the basis of its valuation of Montana Wines at between NZ$3.20 and NZ$3.80 per share.

It has maintained that the PriceWaterhouseCoopers report, which reflected management forecasts, was overly optimistic, and so, therefore, was the valuation range of $4.28 to $4.72.

"In particular, the wine Ebit for the 12 months to 30 June 2001 of $54 million was substantially below the original PWC forecast of $75 million," Mr Cairns says.

"Based on this current performance, Montana looks very expensive when compared with recent acquisitions within the wine sector."

Mr Cairns says his company remains committed to a wine strategy and will continue to look for opportunities in Australia and New Zealand.

"We have already identified a number of specific options that we are progressing.

"As a result of this sale, Lion Nathan is in a strong financial position. The strength of our balance sheet and the robust cash flows from our existing brewing businesses will enable us to make the most of future growth opportunities in the Australian wine industry."

However Mr Cairns says the company is prepared to be patient as it believes wine asset prices will come under pressure from increased domestic competition, slowing export demand and excess wine supply.

Lion took a major interest in Montana from under the nose of Allied Domecq earlier in the year but was found in default for breaching NZSE listing rules in garnering shares before it was entitled to do so.

A committee then ordered the company to divest 19% of its majority stake.

Lion tried to get the order reviewed in the High Court at Auckland but its appeal was thrown out.

Allied Domecq has been fighting a tight legal battle against Lion, watching its every move, and will no doubt feel vindicated that its efforts have been worthwhile.

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