Asahi/Independent Liquor

Asahi buys New Zealand’s Independent Liquor

The Japanese brewer pays $1.3 billion for the Kiwi alcopop maker.
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Vodka Cruiser is one of the leading alcopos in Australia and New Zealand
<div style="text-align: left;"> Vodka Cruiser is one of the leading alcopos in Australia and New Zealand </div>

Asahi is set to pay NZ$1.5 billion ($1.3 billion) for New Zealand’s Independent Liquor, a maker of pre-mixed alcoholic drinks, after a competitive auction in which it saw off some of its biggest rivals.

The deal is Asahi’s biggest acquisition to date and comes after a string of recent purchases aimed at increasing its foreign sales to combat sluggish growth at home. In a filing to the Tokyo Stock Exchange, the Japanese brewer said it would buy all of Independent Liquor’s outstanding shares from private equity owners Pacific Equity Partners and Unitas Capital, which both own 43.9%, as well as the remaining stake owned by the widow of Michael Erceg, the company’s founder.

Independent Liquor, which has plants in New Zealand and Australia, started looking for buyers in mid-June, with Asahi’s Japanese rivals Kirin and Suntory also reported to be interested. China’s Bright Food and Coca-Cola Amatil were also said to be in the running.

The company is heavily indebted and is battling a regulatory backlash against its ready-to-drink products, such as Vodka Cruiser and Woodstock Bourbon, which are blamed for encouraging young people to binge drink. Commonly known as alcopops, these products are spirit-based drinks sold in single-serve portions.

Reforms before New Zealand’s parliament would ban all such drinks with an alcohol content above 5%, which account for roughly 50% to 60% of Independent Liquor’s sales in New Zealand. In a submission made to politicians considering the reforms, the company forecast that “the direct financial impact of the proposed reform would eliminate over a quarter of Independent Liquor’s Ebitda”.

The company also complained about the dominant position enjoyed by Lion Nathan, which is owned by its domestic rival Kirin.

Such problems are nothing new. The Australian government slapped a punitive tax on alcopops in 2008, which forced the company to restructure its business in the country — experience that could prove valuable if New Zealand introduces similar measures.

That is perhaps why Independent Liquor’s problems did little to dissuade potential buyers. Asahi paid 13 times Ebitda (as of June 2011), which is the same as Kirin paid when it completed its acquisition of Lion Nathan in 2009 and slightly more than the 12.5 times that SABMiller is offering in its hostile takeover attempt of Foster’s.

The pressing need to find new markets has spurred an overseas M&A race between Japan’s brewers, with businesses in Australia and New Zealand at the top of their list.

Asahi started its latest round of acquisitions in late 2008, when it bought Schweppes Australia from Cadbury for $810 million. A few months later, in early 2009, it paid $670 million for a 20% stake in Tsing Tao and has already launched three relatively small acquisitions in 2011: Permanis in Malaysia, P&N Beverages in Australia and Charlie’s Group in New Zealand.

Nomura and Rothschild have been key advisers to Asahi in its Australasia expansion and were again involved on this latest acquisition. Nomura was the lead adviser. The deal adds to Asahi’s well-rounded portfolio in the region — carbonated soft drinks through Schweppes and Charlie’s, water and juices through P&N, and now alcoholic drinks — though it is still missing a strong beer business.

Even after all these acquisitions, Asahi will still be shy of its aggressive goal of generating 20% to 30% of its sales from overseas. It started the year with a figure of roughly 6% and the only way it will reach its target by 2015 is through more acquisitions. In addition to a bigger beer portfolio down under, it clearly has its sights on Asia.

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