Sydney, 8 November 2007 - Lion Nathan today announced that it has entered into an agreement to purchase Tasmanian brewer J Boag & Son Pty Limited (J Boag & Son) for $325 million from Philippines based San Miguel Corporation (San Miguel).
The agreement is conditional on regulatory approvals (ACCC and FIRB) and the completion of Kirin Brewery Company’s purchase of National Foods (which was also announced today and is expected to be completed by 31 December 2007). Subject to these conditions, Lion Nathan is expected to assume full control of J Boag & Son in early January 2008.
Lion Nathan CEO Rob Murray said: “This is an acquisition offering strong strategic value. Boag's is a company with great brands and a reputation for brewing excellence and its market focus is highly complementary to Lion Nathan.
“We intend to invest to grow the business. As owner of the J Boag & Son brands and the distribution channel, we intend to leverage our sales coverage and focus, and our distribution reach to make these great beers available to more Australians.
“Our first priority will be to engage with local employees and the community to learn more about the business. We have great respect for J Boag & Son and the job its people have done in growing the business. We recognise and intend to maintain the important role that the brewery plays in the Tasmanian community,” Mr Murray added.
Strong brands in key market segments
63 per cent of J Boag & Son beer volume is consumed in mainland Australia, while 36 per cent is consumed in Tasmania in addition to a small export volume. The J Boag & Son portfolio is led by mainstream brand Boag’s Draught and high equity premium brand James Boag’s Premium. It also includes James Boag’s Premium Light and Boag's St George, among others.
Mr Murray said: “All J Boag & Son brands are steeped in Tasmanian heritage and their distinct positioning offers further growth opportunities across Australia”. Strategic acquisition meets key hurdle rates
J Boag & Son’s FY06 sales revenue was AU$92 million from volumes of around 45 million litres, which generated EBITDA of AU$17.9 million.
The acquisition of J Boag & Son meets Lion Nathan’s previously disclosed earnings per share accretion target (for the first full year) and ROIC hurdle rates for strategic acquisitions.
Jamie Tomlinson, Lion Nathan's Chief Financial Officer said: "Boag's strong brand equity and presence throughout Australia in all key market segments makes this a strategic acquisition for Lion Nathan. James Boag’s Premium represents around 7 per cent of the high growth premium beer category and Boag’s Draught will add a further credible mainstream offering to our portfolio.
“The business has been acquired at 18.2 times FY06 standalone EBITDA, a fair price for a strategic acquisition such as this and the same multiple paid by San Miguel when it purchased the business in 2000. The multiple reduces materially post the expected earnings benefit from combining J Boag & Son within Lion Nathan's distribution system.” Mr Tomlinson added.
Based on FY06 J Boag & Son numbers, the acquisition is estimated to be approximately 1.7 cents per share dilutive to Lion Nathan’s FY08 EPS. This short term earnings dilution is due to a range of factors including the timing of the transaction relative to the seasonality of profits, mainland distribution of Boag brands being contracted to Carlton & United Beverages until 30 June 2008 and interest costs on the acquisition funding.
In addition, there will be as yet undetermined one-off costs associated with the acquisition such as business integration costs, the interest impact of capital costs, as well as transaction costs.
Therefore, the total impact on Lion Nathan’s FY08 EPS is uncertain at this early stage but a further update will be provided when one-off costs are able to be more accurately quantified.
“The acquisition is expected to be EPS accretive from FY09, the first full year of ownership,” Mr Tomlinson said.
Lion Nathan is being advised by Caliburn Partnership as financial adviser and Mallesons Stephen Jaques as legal adviser.