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.


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OneSteel makes cheeky bid for minority shareholders

Crikey mate! They are at it again.

Those cheapskate Aussies are trying to steal (pun intended) Steel and Tube [STU.NZX] off shareholders for the measly price of NZ$4 a share.

OneSteel [OST.ASX] has today launched a bid for the 49.73% of Steel and Tube they don't already own.

It has shades of the Contact Energy[CEN.NZX] takeover bid last year about it when Origin Energy attempted to buy the approximately half of Contact they didn't already own, for a knock down bargain basement price and the board of Contact, which had a number of Origin aligned directors on it approved the bid.

It wasn't until an independent report came back that the bid by Origin was seen as the highway robbery it clearly was and Origin was rightly sent packing.

I assume that OneSteel have a number of directors on the Steel and Tube board sympathetic to Origin's charms, so it doesn't take an Einstein to figure out that they will probably want to rubber stamp their parent company's bid without so much as a "hold your horses mate" (insert Australian twang here).

Apart from the cheek of the bid, it once again highlights the major gaps in New Zealand's financial regulatory and takeover laws, where a majority holder in a listed company thinks they can dupe the remaining shareholders simply because they have board control and therefore the controlling votes.

Of course this is where Steel and Tube shareholders are crucial in this scenario. If they are dumb enough to sell for 4 bucks well you just cant help some people.

Seriously though, times are tight so investors could be forgiven for folding but the company is worth more than $NZ4(at today's AU/NZ exchange rate cross only AU$3.28 )

Steel and Tube is a cyclical company. Currently the building and construction sector is experiencing a slowdown and raw materials are getting more expensive to buy to make their products. The current credit crunch and market jitters isn't helping either and as a consequence the share price is trading at multi year lows.

This will change, there will be a construction upswing, market turmoil will abate and raw steel is going drop in price.

Guess what, that means profit and the share price will rise.

OneSteel's bid is therefore very opportunistic. I don't blame them, it is a smart move.

But and it is a big but (insert OZ accent again) it is up to shareholders to have some steely resolve and and just say no to those aggressive little buggers across the ditch.

I have been an unwilling participant in a cheapskate takeover before. The Transpacific Industries [TPI.ASX] "merger" of Waste Management NZ a few years back left me with a bitter taste in my mouth.

The CEO of Transpacific made what he called a "fair bid' for an almost monopoly company that had been growing profit at 20% per annum for over 5 years and shareholders fell all over themselves to take the cash.

A made a large profit on a large number of shares but I didn't want to sell. Waste Management was going to be a good long term company in my portfolio.

As I am a small shareholder in Steel and Tube, my advice to shareholders is to hang on tight for the independent directors report on the OneSteel bid.

See what they have to say and if they approve tell OneSteel and the directors where to get off.


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