Australia: Lion Nathan is keeping its $200 million share buyback on hold

Lion Nathan has signalled it is already in early negotiations over an acquisition or divestment by keeping its $200 million share buyback on hold for "corporate governance" reasons, The Sidney Morning Herald published February 9.

The trans-Tasman brewer last year made an unsuccessful $420 million tilt at Coopers Brewery and lost out on the $NZ1.3 billion ($1.14 billion) purchase of Independent Liquor, narrowing the range of possibilities for the current deal.

It is understood the brewer's board thought it was improper to purchase its own shares when it possessed inside information, even though the potential deal has not progressed far enough to announce it to the market.

Macquarie Equities analysts said it was difficult to identify likely acquisition targets given Lion Nathan's stated goal of evaluating opportunities consistent with its focus on beer, fine wine, spirits and ready-to-drink pre-mixed spirits.

But nevertheless, they named a few possibilities.

Boutique Australian brewers James Boag and Little World Beverages were deemed worthy of consideration. Macquarie estimated Boags could be worth about $340 million, while Little World - already 34 per cent-owned by Lion Nathan - has a market value of about $95 million.

Analysts also said a second tilt at Independent Liquor was possible, even though it was purchased by private equity firms just two months ago.

"Could these companies have already discovered the complexity and challenges of running this business and be looking for a quick exit?" the analysts asked.

Macquarie said there were other options - albeit "extremely unlikely" - such as a purchase of the US-based Coca-Cola Company's 32 per cent stake in local bottler Coca-Cola, which would be worth $1.9 billion.

Another possibility could be Lion Nathan's largest shareholder, Japanese brewer Kirin, increasing its 46 per cent stake in the company.

But given Lion Nathan did not specify whether a potential deal was an acquisition or divestment in its first-quarter update, released on Thursday, Macquarie said another option was the sale of its underperforming wine business, which could fetch about $238 million.

In contrast with Macquarie, ABN Amro analysts thought the unspecified "corporate development opportunities" could refer to a replacement national brewery, the national rollout of its McKenna spirit and ready-to-drink brand or potentially the addition of other spirit or ready-to-drink brands to the Lion Nathan portfolio.

Lion Nathan shares closed 8c higher at $8.53 on Friday.

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