Kirin bid for Lion Nathan undervalues brewer

So Kirin is making an offer for the rest of Lion Nathan Ltd PDF [LNN.NZ] that they don't already own. They are offering A $12.22 per share therefore valuing the company at about $A6.5 billion.

The LNN board is recommending the offer but are shareholders getting a fair deal?

Lets do a comparison of the recent buyout last year of Anheuser Busch by InBev. In that deal InBev bought its target for close to US $50 billion with valued the company at approx 15X EBITDA according to website Blogging Stocks.

The Kirin/Lion deal values Lion at 12.5 X EBITDA according to Michael Feller from the Business Spectator

"The price Kirin is offering effectively values Lion at $6.5 billion on an equity basis and $8.2 billion on enterprise value, as well as an FY09 consensus forecast EBITDA multiple around 12.5 times".

The EBITDA comparison then between the two deals shows an enormous gap in the prices paid for the two targets, with Kirin shelling out 20% less to take control of Lion than what InBev paid for Anheuser Busch last year.

If a comparable 15 X EBITDA figure was offered by Kirin then the per share price should be closer to $14.66 per share.

Figures aside the iconic status of both target brewers is very strong and there should be a premium for that.

Also the tough economic times we are currently facing show fully the benefits and therefore the value of having brewing assets-they do well during booms and better in recessions!

The long-term benefits of good brands must also be accounted for in this takeover price.

Clearly then, Lion shareholders are being seriously under represented by Lion Nathan management as they have agreed the price to be paid is sufficient and another higher offer must be made for control of the company.

Lets hope the independent report into the offer turns out to be a definite no at the current Kirin offer price.

Shareholders should reject the bid.


Recent Share Investor Reading

• Bank Guarantees: The Return of Bryce
• 535 Ex Trans Rail Holders due $10 million
• Sky City CEO doubles down
• More Moola Please!
• I'm Buying: 2009

• Discuss this topic @ Shareinvestorforum.com

c Share Investor 2009

"Sin" stocks saintly for the Wallet

My largest holding, Sky City Entertainment [SKC.NZ] is doing well at the moment.

For the six months ending 31 December 2008 profit was tracking last years' half and I have been telling anyone who would listen at every opportunity that it is a good buy at current share price levels .

With the interim report out today comes the news that gaming revenue at Auckland Casino is up by 4% while Adelaide and Darwin are up by around 14%.

Great news considering the economic downturn.

Lion Nathan [LNN.NZ] the Australasian brewer, majority owned by Japan's Kirin is keeping its head above the foam well with drinkers of their product reaching for a cold one more often and when they do its one of those fancy "premium" beers that poofters and women drink-it works for them though.

Profit was up 4% for the 2008 full ear.

Unfortunately Lion Nathan's share price reflects their strong position in the current economy and is near its highs.

Another stock that has done well share price wise during this current downturn is Restaurant Brands [RBD.NZ] Believe it or not its stock has gone up over the overall market downturn-its big drop ironically came before the recession.

The operator of Pizza Hut, KFC and Starbucks in New Zealand has been selling its product better than it does normally-a temporary thing methinks-because of the recession so says its usually media shy CEO. Diners are apparently "trading down", every chicken has its day I guess.

These are the only 3 "sin" stocks listed on the NZX (Restaurant Brands is considered one by the food Nazis so I respectfully put it there) and they will do well in any downturn.

People like to gamble, drink, smoke, have sex and eat "junk" food and they especially like to do these things during a recession.

If you are reading this from another market consider tobacco, oil and sex related stocks if you have them listed on your local bourse.

They well might give you a lift.

Recent Share Investor Reading

• Bonds: "Investment Grade" Bonds
• Attractive looking Stock Prices
• Warren Buffett Week
• Warehouse 2009 Interim Profit a key economic indic...
• What is a Depression?

Related Amazon Reading


Stocking Up on Sin: How to Crush the Market with Vice-Based Investing by Caroline Waxler
Buy new: $21.24 / Used from: $4.20
Usually ships in 24 hours

c Share Investor 2009

Coke is it

People love it, it is ones of the worlds most enduring and loved brands. Warren Buffett loves it and has a massive shareholding in the American icon.

In this day and age of dwindling fortunes and sagging sales this brand is a stalwart and Lion Nathan [LNN.NZX], the Australasian brewer, wants a piece of the Australian company that makes the black sticky concoction in this part of the world, Coca-Cola Amatil [CCL.ASX]

Lion Nathan previously owned the loss-making Pepsi franchise in Australasia so clearly see a non-alcoholic soda drinks company as integral to its alcohol brands.

Buffett calls companies like Coca-Cola Amatil "economic moats". That is, a company that has a strong brand and a product that is unique, enduring, easy to understand and sells, even during hard times.

Lion Nathan execs must have been reading some of Warrens screeds of pronouncements on his investing principles because they have their target right. The only problem being they haven't offered CCL Amital stockholders enough for their sweet black goldmine.

Lion have offered only AU$ 7.7 billion for Coca-Cola Amatil . The cash and stock bid, made at a 25 per cent premium to cokes share price, has been roundly criticised by CCA management as "unattractive" and "complicated". The offer from Lion gives Coke shareholders stock in Lion Nathan which is majority controlled by Kirin, the Japanese brewer.

The parent company and approx 30% shareholder in CCA will not comment on the matter but its CFO said last month to analysts:

"if the purchaser had the financial and the management resources to really grow that market for the long term, and that when selling we would sell if at fair value."

The stock and cash offer, even at a 25% premium is still below "fair value" and its is unclear as to whether Lion's management would grow the Coke brand and its other products long-term but of course the answer to that would be why wouldn't they?

The CCL Amital parent company, The Coca-Cola Company [NYSE: KO], wouldn't necessarily go for a higher price for their 30% shareholding but a company that would provide a higher return for their providing the syrup for finished product, which they get whoever owns CCL Amital.

Coke is a strong brand with a massive market share in this part of the world and that and its other strong brands; Fanta, Sprite, Lift, Lift Plus, Powerade, L&P and Schweppes make Lions initial bid too low by far.

Hang on CCL stockholders, don't sell yet.

Related Links

Buffett and Coke

CCA Shareholder centre

Complete 2007 annual report PDF format (802kb) Complete 2007 Shareholder Review PDF format (2.6mb) Notice of Meeting PDF format (235kb) From Amazon For God, Country, and Coca-Cola: The Definitive History of the Great American Soft Drink and the Company That Makes It by Mark Pendergrast Buy new: $15.61 / Used from: $5.73 Usually ships in 24 hours The Real Thing: Truth and Power at the Coca-Cola Company by Constance L. Hays Buy new: $10.85 / Used from: $4.60 Usually ships in 24 hours Petretti's Coca-Cola Collectibles Price Guide by Allan Petretti Buy new: $31.65 / Used from: $9.00 Usually ships in 24 hours Coca-Cola: The Collector's Guide to New and Vintage Coca-Cola Memorabilia by Randy Schaeffer Buy used from: $4.85 Other Coca Cola books from Amazon c Share Investor 2008