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Independent Liquor sellers win round one in court-room stoush with Asahi

Wednesday 9th October 2013

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The private equity firms that sold local booze maker and distributor Independent Liquor have won the first round of a court battle to prevent buyer Asahi Holdings accessing privileged documents relating to the sale.

In the Federal Court of Australia, Justice Christopher Jessup upheld the claim by Pacific Equity Partners and Unitas Capital that several thousand documents produced by law firm Clayton Utz, accounting firm PwC and investment bank UBS were privileged and won't be open for Asahi to trawl through in its claim against the private equity firms.

Among the documents withheld was advice on escrow agreements where a portion of the funds paid by Asahi, a Japanese beverages giant, were held in escrow to meet any potential tax liability from the mandatory convertible notes issued in January 2007 by Independent Liquor's previous holding company, Flavoured Beverages Group Holdings, the judgement said.

The use of the notes, which let companies juggle debt and equity to provide a tax advantage, has been the target of several avoidance cases launched by New Zealand's Inland Revenue Department.

Asahi's $1.5 billion acquisition provided for any tax that may have to be paid, with an adjustment made between the parties once the extent of liability, if any, was determined, the judgment said.

The Japanese company filed the claim in February this year, alleging Independent Liquor's earnings before interest, tax, depreciation and amortisation were inflated during the due diligence and sale process, and that they were provided with false and misleading financial information during that time.

The judgment also shows Asahi considered taking a minority stake in Independent Liquor when the private equity firms first started shopping it around in 2011, submitting a non-binding indicative offer to take a 33.3 percent stake in the company alongside the existing shareholders.

Advice relating to the structure of that deal and the allocation of shareholder rights and powers was also deemed privileged.

Asahi bought Independent Liquor, trading as Flavoured Beverages Group Holdings, in 2011.

Around the same time as the Independent Liquor acquisition, it bought Australia's P&N Beverages and Malaysia's PepsiCo bottler Permanis Sdn, having purchased Schweppes Australia and New Zealand's Charlie's Group in the two years prior, using proceeds of a US$4.9 billion warchest.

The Oct. 3 judgment was published on the Federal Court's website last week.

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