UPDATE 4-Kirin eyes Asia growth with Lion Nathan buyout

Published: 26 Apr 2009 23:00:07 PST

* Offer worth A$12.22 a share, Lion Nathan shares soar

* Pitched at 47 percent premium

* Valuation matches InBev-Anheuser Busch deal (Adds comment from Kirin, background)

MELBOURNE, April 27 - Japanese brewer Kirin <2503.T> on Monday agreed a $2.5 billion buy-out of Lion Nathan <LNN.AX>, Australia's second-largest beer maker, in a move that could pave way for Kirin to expand further into Asian markets.

Lion Nathan shares, which resumed trade on Monday, soared more than 40 percent on news that Kirin was buying the 53.9 percent of Lion it did not already own at a 47 percent premium. The deal is part of an aggressive move by Japanese brewers outside their shrinking home market.

Kirin, which has been locked in a fierce battle with Asahi Breweries <2502.T> for top slot in Japan's beer market, has been the boldest in chasing overseas acquisitions, spending about $1.4 billion in recent years to buy National Foods and Dairy Farmers.

And in February, it secured a deal to buy up to 49 percent of Philippine San Miguel Brewery <SMB.PS> for another $1.4 billion.

The company was not considering any more large-scale acquisitions in Australia, but did not rule out smaller buys, Hirotake Kobayashi, Kirin's general manager for strategic planning, told a briefing in Tokyo.

He said Kirin would continue to look for acquisition opportunities in Southeast Asia.

Hiroshi Saji, senior analyst at Mizuho Securities in Tokyo, said the buyout of Lion Nathan would give Kirin access to rich cash flow, given a duopoly in the Australian beer market.

"The key is, by using its ample cash flow, how Kirin would expand its business further in Asia and Oceania markets. The company is also currently in the process of buying (part of) San Miguel Brewery. The challenge for the company is how to connect these dots for larger market presence."

The Lion Nathan takeover would allow Kirin to tie in the maker of XXXX Gold and Hahn beer with its other businesses in Australia; dairy and juice firm National Foods and milk group Dairy Farmers.

Australia has long been an attractive market for brewers because beer sales, dominated by Foster's Brewing Group Ltd <FGL.AX> and Lion Nathan, have big profit margins.

A STRONG OFFER

The offer for Lion Nathan is worth A$12.22 a share, including A$11.50 a share in cash from Kirin and dividends totalling A$0.72 if the deal goes ahead. The overall offer values the buy-out at about A$3.5 billion.

"As a shareholder, it's clearly a strong offer," said John Grace, portfolio manager at Ausbil, which owns Lion Nathan stock. "We'll certainly consider it. At first read it looks like a reasonable bid."

Non-Kirin shareholder feedback was positive, Lion Chairman Geoff Ricketts said, and the deal was likely to go through by September. Lion did not expect problems with foreign investment regulators in Australia or New Zealand, and was hopeful there would be no objection by competition regulators.

"Certainly, the shareholders that have rung through this morning seem very satisfied with the outcome," Ricketts told reporters by telephone. "They seem very comfortable," he said.

Lion shares rose to as high as a record A$11.84, having traded at A$8.31 before being suspended on Wednesday. Kirin shares eased 2.5 percent, in line with a fall in Japanese food stocks.

"So far, due to the existence of other shareholders, we have not been able to carry out strategic moves that would be positive for the group as a whole but could be negative for Lion Nathan," Kirin's Kobayashi said.

"On group synergy effects, National Foods and Lion Nathan have overlapping functions in areas such as back office and corporate staff, and we can achieve large cost savings there."

The Australian brewer said the offer valued the whole of Lion at A$8.2 billion on enterprise value, or 12.5 times analysts' forecasts for 2009 earnings. That matches the valuation on InBev's <INTB.BR> $52 billion buy of Anheuser-Busch last year.

"This is a very attractive outcome," said Ricketts. "It is a compelling offer at a significant premium."

Investors had said a price benchmark for the offer would be the A$11.50 a share Kirin offered to pay for Lion shares last year as part of the funding Lion needed for a failed A$7.6 billion bid for Australian bottler Coca-Cola Amatil Ltd <CCL.AX>.

"At first glance it's a reasonable offer compared to the benchmark they put on the table with the Coca-Cola Amatil deal," said Theo Maas, analyst with Fortis Investment Partners, a Lion shareholder.

Analysts put high odds on a deal going ahead.

"The probability of a successful deal remains high given Kirin's strategic rationale, its available war chest and low funding costs, the open minority register and lack of regulatory hurdles," Citi said in a note, after Lion reported an unaudited first half profit on Friday of A$176 million, up 6.9 percent.

The offer is subject to approval from non-Kirin shareholders. ($1=A$1.39)