Cairns defends Lion's winemaker buys

By Nick Stride

Friday 16th November 2001

Lion Nathan chief executive Gordon Cairns yesterday rejected criticism the brewer is paying too much for Australian winemaker Petaluma, saying synergies would flow in as the wine strategy evolved.

"The first one's always expensive and the second one's always cheap because you've got the synergies," Mr Cairns told the National Business Review.

Lion's $A7.20 a share offer has secured more than 90% of Petaluma's shares and it will compulsorily acquire the remainder.

Lion is also offering $A1.15 offer a share for Banksia wines and has 21%.

If the Banksia offer is successful the two companies will have cost Lion $A297 million ($367 million).

Mr Cairns said the "blended" price for the two offers valued the companies at 13.5 times earnings before interest, tax, depreciation and amortisation, well within the range for recent wine acquisitions.

He rejected criticism from some analysts that Lion had walked away from an overpriced Montana only to pay over the odds for Petaluma.

Petaluma had four distinct and unique advantages, he said, three of which Montana lacked.

It had genuine icon brands - Petaluma Chardonnay, Petaluma Cabinet Sauvignon, and Croser methode champenoise.

All three scored 90 points or more out of 100 in wine critic James Halliday's annual rating of Australian wines.

It had premium pricing - the average retail price a bottle for Petaluma's 387,000 cases of annual sales was $A36.

It had its own Australian selling and distribution system.

And it had a US distribution system, a joint venture with Stimson Lane.

Lion's first priority was to consolidate its Australian assets and to develop the Stimson venture.

At some stage it was keen to add a Marlborough Sauvignon Blanc to its range.

The investments were expected to dilute Lion's earnings a share by 1c until 2004 but earnings would exceed the cost of capital from 2005.

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