Friday 19th May 2000
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To some, Lion Nathan's abrupt entry into the wine business may seem another sign of big corporates' growing interest in the sector.
This would be good news for smaller winery and vineyard owners, many of whom are undercapitalised and will have great difficulty gaining export sales. Some are no doubt already misty-eyed with visions of chequebook-laden executives fighting for their attention. They shouldn't get too excited yet.
Lion's Montana buy-in is exactly what it says it is - a move to prevent a competitor gaining significant distribution clout in its home market.
It doesn't mean a change in attitude towards an industry Lion has long said soaks up too much capital for too little return. But for all that wine is growing fast and the brewer is short of growth strategies in the local market.
It may change its mind. As Montana chairman Peter Masfen pointed out, his company has seen average annual earnings growth of 18% for years and expects that sort of performance to continue. Analysts agree.
By contrast the beer market here has been shrinking and Lion's local market earnings have been stagnant.
Over at Fosters the Mildara Blass wine division produces about 19% of sales and 20% of earnings before interest and tax and is expanding rapidly. Its major Australian assets are the Wolf Blass, Jamieson's Run, and Yellowglen brands and the Cellarmaster Wines wine club.
Along with Pallhuber in Germany and The Wine Exchange in Holland it has access to wine clubs in Australasia, Europe and the US. It owns wineries in California and has a joint venture in Chile.
Fosters confirmed what the market had long suspected when it said this week it had talked to Montana about a full takeover bid. It walked, apparently after Masfen, who owns 20%, turned down an offer of $2.80 for his shares.
So it was no surprise that Masfen described Lion's $2.30 foray as "semi-hostile". The question now is, how much of Montana does Lion want?
Chief executive Gordon Cairns pointed out Lion shareholders have $1 billion invested in New Zealand and said the $100 million stake would "enhance its position."
Given the move is primarily defensive, another $100 million or so, taking the holding to a safe-ish 40% would presumably enhance it even further.
Analysts are divided. Some say it's too much money to spend on a mere blocking stake, others accept Lion's line that it will lead to distribution synergies.
And that's what it's all about.
Fosters already has a distribution system for its beer and wines but Montana would have extended it.
Its plans for New Zealand wine are unlikely to end with Montana. Interestingly it recently bought Carters, the country's biggest supplier of wine corks, capsules, wire, etc.
Aussie giant BRL Hardy is seeking to take its Nobilo stake from 40% to 100%, a move that will allow it to integrate fully the Australian and New Zealand distribution of its wines.
And DB Group's decision to sell Corbans may not have been driven entirely by the loss of its liquor distribution business to Lion but it would certainly have been a contributing factor.
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