COCA-COLA Amatil might have reduced its blue-sky growth options when it sold a big hunk of its alcohol business to SABMiller but rumours are rife that it is mapping out a three-year alcohol strategy that includes bidding for the lucrative Corona beer contract once it is free to re-enter the Australian beer market next year.
Another part of its strategy is the purchase of part or all of Foster's non-beer business. Coca-Cola Amatil (CCA) has confirmed that this month it will begin due diligence on the business, which includes Foster's Australian spirit and ready-to-drink operation, its Australian non-alcoholic business and the Fijian brewery, liquor and soft-drinks business for up to $180 million.
While most think CCA will buy the operation lock, stock and barrel, there is talk that CCA might sell off the spirits arm, which includes Black Douglas, Cougar Bourbon, Kirov Vodka and Napoleon brandy, to Beam Inc, owner of the Jim Beam brands and holder of a licence agreement with CCA to distribute Jim Beam in Australia.
The details of CCA's agreement with Jim Beam are confidential, but a well-placed industry source says Beam is interested in buying some of the Foster's non-beer business.
CCA is clearly in no mad rush to buy Foster's non-beer business. It has a right to acquire all or part of it until June, and it has indicated it will take that time to do a deal. If it had been in a hurry it could have
started due diligence as soon as the Foster's board approved the takeover offer from SABMiller.
The Fijian beer, spirits and soft-drink business would be a great fit for CCA, which at present holds the Coca-Cola bottling franchise in Fiji. Indeed, at one stage Foster's planned to recruit the head of CCA in Fiji to run its business. The acquisition would also create synergies with Foster's soft-drinks business, which includes brands such as Cascade and Hi C, which are premium but not high volume.
Waiting until the new financial year buys CCA boss Terry Davis a short-term growth filler before CCA can proceed with its long-term growth strategy in alcohol. Three weeks ago it said it would receive a $165 million profit from the sale of its 50 per cent stake in Pacific Beverages.
But the long-term strategy is where the market will be focused, given CCA's current lack of blue-sky growth potential.
This is most likely to include trying to win the Corona licence from Foster's and then leveraging off it to buy a boutique beer company. Corona is one of the most lucrative beer licences in the country, generating a profit in Australia of about $70 million a year. When the licence comes up for renewal, it will be heavily sought after by the big beer companies.
Last month the newly owned Foster's lost the Stella beer licence to the Japanese-owned Lion Nathan. The Stella licence was worth about $15 million a year.
As part of the sale of CCA's 50 per cent interest in Pacific Beverages to SABMiller for $305 million, CCA agreed to steer clear of the beer market in Australia until the end of next year. It is believed that the Corona licence will be up for grabs around that time and one of CCA's key executives, John Murphy, will be focused on wooing it over.
CCA certainly needs a new string to its bow. In an update to the market on December 16, Davis warned that the company expected to report an underlying rise in net profit of 4.5 per cent in the December half.
This would be its lowest rate of profit growth since 2006 and was underpinned by revenue growth in Australia and Indonesia. CCA'S foray into SPC has been a disaster; it missed out on Frucor and Golden Circle and also missed out on Boag's.
Recent media speculation is that the company is considering re-entering the snack foods business after selling out in 1993. The latest talk is that it might be interested in dipping its toes back in the market with a tilt at The Real McCoy Snackfood Company, which owns several me-too brands such as Cheesters, Burger Man and Nature's Earth.
CCA's stock finished in yesterday's trading at $11.68, slightly above the $11.61 cash-and-scrip offer from Lion Nathan in 2008-09. It is worth noting that this offer was made before Kirin's offer for Lion, which would almost certainly still have come and delivered a further accelerated return to CCA shareholders who took Lion scrip.
Kirin subsequently paid $12.22 a share for Lion shares, which were trading at less than $9 at the time of Lion's offer for CCA, and it would arguably have had to pay a higher premium to take out the remainder of a stronger combined group at some point. (The scheme was designed to leave Kirin with 46 per cent of Lion/CCA, the same as Kirin owned in Lion.)
The market will await CCA's next move, but no doubt its parent, The Coca-Cola-Company, will be watching even more closely to make sure its plans fit in with its own.
aferguson@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
What is Coca‑Cola Amatil's growth strategy after selling part of its alcohol business to SABMiller?
According to the article, Coca‑Cola Amatil (CCA) is mapping a three‑year alcohol strategy that includes preparing to re‑enter the Australian beer market once permitted, potentially bidding for the lucrative Corona licence, and pursuing acquisitions such as part or all of Foster’s non‑beer business to restore growth.
Is Coca‑Cola Amatil planning to buy Foster’s non‑beer business and what does that include?
CCA has confirmed it will begin due diligence on Foster’s non‑beer operations, which could include the Australian spirits and ready‑to‑drink (RTD) operation, Foster’s Australian non‑alcoholic business, and the Fijian brewery, liquor and soft‑drinks business. The potential deal is reported to be for up to $180 million.
What is the timeline and price range for CCA’s possible purchase of Foster’s non‑beer assets?
The article says CCA has the right to acquire all or part of Foster’s non‑beer business until June and will take that time to complete due diligence and strike a deal. Media reports suggest the purchase could be for up to $180 million.
Can Coca‑Cola Amatil re‑enter the Australian beer market now, and are there any restrictions?
As part of the sale of its 50% interest in Pacific Beverages to SABMiller, CCA agreed to steer clear of the Australian beer market until the end of next year. Once that restriction lifts, CCA is believed to be preparing to pursue licences such as Corona.
Why is the Corona beer licence significant for investors and CCA?
The article notes Corona is one of Australia’s most lucrative beer licences, generating about $70 million a year in profit. When the licence is up for renewal it will be highly sought after by big beer companies, making it a potential growth lever for CCA if it can win the licence.
Could Beam Inc buy Foster’s spirits brands from CCA?
Industry reports in the article indicate CCA might sell the spirits arm — which includes Black Douglas, Cougar Bourbon, Kirov Vodka and Napoleon brandy — and that Beam Inc (owner of Jim Beam) has shown interest in buying some of Foster’s non‑beer business. Details of CCA’s Jim Beam distribution agreement are described as confidential.
What is Coca‑Cola Amatil’s recent profit outlook and how does the Pacific Beverages sale affect it?
CCA warned it expected an underlying rise in net profit of about 4.5% in the December half — its lowest rate of profit growth since 2006 — supported by revenue growth in Australia and Indonesia. The company also said it would receive a $165 million profit from the sale of its 50% stake in Pacific Beverages to SABMiller.
Is CCA likely to return to the snack foods business and which brands are being mentioned?
The article cites media speculation that CCA is considering re‑entering the snack foods market (it sold out in 1993). Reports suggest it might target The Real McCoy Snackfood Company, owner of brands such as Cheesters, Burger Man and Nature’s Earth, as a possible way to diversify growth.
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