Australia: Domestic brewers bid for Distillers Group

Foster's Group and Lion Nathan are likely bidders for Independent Distillers Group, investors said May 29, as Australia's biggest brewers look to raise sales of spirits and pre-mixed drinks as beer sales stall, Bloomberg informed May 30.

Independent, New Zealand's biggest maker of pre-mixed drinks, has hired UBS to advise it on sale options following the death last year of its founder, Michael Erceg. The company, based in Auckland, could sell for as much as 1.1 billion Australian dollars, or US$834 million, analysts at Goldman Sachs JBWere said.

Trevor O'Hoy and Rob Murray, the chief executives, respectively, of Foster's and Lion Nathan, want to attract younger consumers who are switching from beer to sweeter mixed drinks. Buying Independent would give them brands including Woodstock bourbon, Claymore Scotch and Vodka Mudshake, putting them in second- place in the Australian pre-mixed drinks market behind Diageo.

"That is where the market is heading and Foster's needs to bulk up in that area and Lion Nathan is trying to do the same thing," said Atul Lele of White Funds Management in Sydney. "I expect they are looking at it very closely."

Pre-mixed drinks have more than doubled their share of the Australian market to almost 10 percent since 1999, according to Foster's, the nation's biggest brewer, while beer's share has fallen to 71 percent from 76 percent.

Foster's shares fell 9 cents to close at 5.50 dollars in Sydney May 29, erasing its gains for the year. Lion Nathan shares fell 55 cents to 7.73 dollars.

Murray said he had not decided whether to bid for Independent while Troy Hey, a spokesman for Foster's, declined to comment.

Both companies already have spirits businesses. Foster's owns the Black Douglas Scotch and Cougar bourbon brands. Lion Nathan has an Australian joint venture with Bacardi selling rum- based drinks. It is also New Zealand's biggest bottled spirits importer.

Foster's share of the Australian pre- mixed drink market is about 7 percent and Lion Nathan's is less than 5 percent, compared with about 27 percent for Independent and 35 percent for Diageo, whose brands include UDL, Johnnie Walker & Cola and Smirnoff Ice.

In New Zealand, Independent has about two-thirds of the pre-mixed drinks market, according to Thomas Chin, chief executive officer of the Distilled Spirits Association in Auckland.

Founded in 1987, Independent developed pre-mixed drinks like KGB and Vodka Cruiser for the New Zealand market. It expanded production to Australia in 2000 and Britain in 2002, according to the company's Web site.

Erceg was 49 when he was killed in a helicopter crash in November.

With the New Zealand license for beers like Carlsberg, Grolsch and Tuborg, Independent also has about 8 percent of the country's beer market, trailing Lion Nathan's 50 percent and 35 percent for DB Breweries, a unit of Asia Pacific Breweries.

With only a quarter of Australian beer drinkers consuming the beverage exclusively, Murray wants to attract people who also drink wine, spirits and pre-mixed drinks.

"It makes sense for Lion Nathan," said Grant Saligari, an analyst at Commonwealth Securities in Sydney.

Lion Nathan may have to sell some assets in New Zealand if it wins Independent because its leading position in beer and imported bottled spirits may raise antitrust objections, said Matt Hoult, a fund manager at ABN AMRO Asset Management in Sydney.

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