Lion Nathan Limited

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Lion Nathan Limited

Level 30, 363 George Street
Sydney NSW 2000
Telephone: +61-2-9290-6600
Fax: +61-2-9290-6699

Public Company
Incorporated: 1988
Employees: 4,334
Sales: A$1.66 billion (2002)
Stock Exchanges: Australia New Zealand
Ticker Symbol: LNN
NAIC: 312120 Breweries; 312111 Soft Drink Manufacturing; 424490 Other Grocery and Related Product Merchant Wholesalers; 424810 Beer and Ale Merchant Wholesalers; 424820 Wine and Distilled Alcoholic Beverage Merchant Wholesalers

Lion Nathan Limited is one of the leading brewers in the Australasian region, with the number one spot in New Zealand (its former home) and the number two position in Australia. Lion Nathans network of breweries produces a full range of beers, including stouts, ales, lagers, and low-calorie and alcohol-free beers. Among the companys top-selling brands are Lion Red, XXXX, Tooheys, Emu, Steinlager, Speights, and Swan. Lion Nathan distributes its beers throughout Australasia, as well as to other international markets, including Asia, Europe, and North and South America. The company also operates its own wholesale and retail distribution networks, including 40 stores in New Zealand. Approximately 75 percent of the companys sales come from Australiathe company relocated its headquarters to that countrywhile New Zealand represents 20 percent of sales. The remaining 5 percent is generated through the companys two brewery operations in the Yangtze Delta region of China. As beer sales have been slowing in the mature Australian and New Zealand markets, Lion Nathan has begun extending its range to include winemaking, notably with the acquisitions of Petaluma and Banksia, both in Australia, since 2001. Traded on the Australian and New Zealand stock exchanges, Lion Nathan has brought in an industry heavyweight as a major shareholder46 percent of the companys shares are held by Japanese beer and beverage giant Kirin Brewery Company.

Making New Zealand Beer History in the 19th Century

Lion Nathan Limited was formed through the merger of two major New Zealand companies, LD Nathan & Co. and Lion Corporation, in 1988. Both companies operated diversified holdings. LD Nathan centered around department store and supermarket holdings, which included Woolworths, 3Guys, and others. Lion focused especially on its breweries and beer brand, which included the top-selling Lion Red brand. Soon after the merger, the new company, led by Chairman and CEO Douglas Myers, decided to streamline its holdings and restructure Lion Nathan around its core beer brands. By 1990, the group had sold out nearly all of its retail stores, keeping only a network of beverage retailers, as the company began an acquisition drive that built it into one of the top brewers in the Australasian region.

The roots of Lion Nathans brewing interests lay in the first half of the 19th century. In 1840, two Auckland-based liquor distributors, John Campbell and William Brown, founded the Hobson Bridge Brewery. Hobson Bridge eventually changed its name, becoming the Domain Brewery, before merging in 1898 with another company, the Albert Brewery, which had been founded by Louis Ehrenfried in 1878. The new company was called Campbell & Ehrenfried, and went on to become the dominant player in the New Zealand brewery market in the early 20th century. Ehrenfrieds nephew, Arthur Myers, took over the lead of the company at the beginning of the century, linking that familys name with New Zealand brewing.

In 1915, Campbell & Ehrenfried acquired another prominent Auckland brewer, the Great Northern Brewery, founded by Richard Seccombe in 1860. Seccombe adopted the brand name Lion for his beer, taken from the lion symbol on his family crest, and after the merger with Campbell & Ehrenfield, the brewerys name was changed to Lion Brewery.

The prohibitionist movement forced New Zealands brewers into defensive mode. In 1923, Campbell & Ehrenfried led nine other brewers in the creation of a single, more powerful unit capable of resisting the appeals for prohibition. The new entity was named New Zealand Breweries and became the dominant force in the countrys beer industry. Meanwhile, Campbell & Ehrenfried expanded into other industries, including hotel operations and liquor production. The company later came under the leadership of Kenneth Myers, son of Arthur.

In 1965, Myerss son, Douglas Myers, was appointed managing director of Campbell & Ehrenfried. In 1970 the father-son team bought out other family members, gaining full control of the company. In 1971, Campbell & Ehrenfried joined with Lion Brewery, creating New Zealand Wines and Spirits, which was then 50 percent owned by the Myers family. New Zealand Wines and Spirits became one of the leading wine and spirits producers and distributors in the Australasian region. Meanwhile, Lion Brewerys core brand, Lion Red, had become the largest-selling beer brand in New Zealand.

Australian Brewing Giant in the 1990s

Douglas Myers sold off his share of New Zealand Wines and Spirits and instead bought a 20 percent controlling share in Lion Brewery in 1981. Myers took over the managing directors position of that company, which was renamed Lion Corporation, in 1982. By 1985, Myers had increased his share in Lion Corporation to 30 percent. Myers then set out to expand the company, focusing on building strength in the New Zealand market.

The merger between Lion Corporation and LD Nathan, begun in 1985, became a takeover by 1988. The newly enlarged Lion Nathan represented a variety of interests, ranging from breweries to soft drinks manufacturing to hotels and retailingincluding the Woolworths department store chain. By the end of the decade, however, Myers had refocused the company around its core brewing operations. In 1988, the company sold off its Woolworths operation to Australias Cole-Myers. In 1989, the company sold its Oasis soft drink manufacturing business to the Coca-Cola Company, although Lion Nathan retained a bottling license for Pepsi. By 1990, the company had made plans to sell off most of its remaining retail holdings, keeping only a chain of wine and spirits shops.

Lion Nathans streamlining had prepared it for a major acquisition that transformed the company into a towering force in the Australasian brewing industry. At the end of the 1980s, some 95 percent of Lion Nathans revenues came from New Zealand. Only 5 percent of the companys sales came from Australia. By the end of the next decade, the situation had reversed, with Australia representing more than 75 percent of sales, and New Zealand representing just 20 percent of revenues.

Lion Nathans big moment came in 1989, when Myers began negotiating to acquire 50 percent of National Brewing, which represented the Australian brewing interests held by the struggling Bond Corp. In 1992, Lion Nathan completed the acquisition, at a cost of A$650 million in cash and debt, giving the New Zealand company control of a number of leading Australian beer brands, including Castlemaine Perkins XXXX, Swan, and Toohey.

All three brands had been Australian brewing fixtures since the 19th century. Castlemaine Perkins stemmed from 1859, when Nicholas and Edwin Fitzgerald, whose father had operated a brewery in Ireland, founded the Castlemaine Brewery in Australias Victoria; by the 1870s, the company had begun using the X symbol on some of its ales (the number of Xs denoted the alcohol content). In 1928, the Castlemaine company acquired Perkins & Co., which had been founded in 1866 by brothers Paddy and Thomas Perkins.

In 1980 Castlemaine merged with another major Australian brewer, Tooheys. That company had been founded by John Thomas Toohey in 1869 in Sydney, and by 1902, the company had gone public. Tooheys later reigned as a major label, particularly in the New South Wales region, where it became the top-selling beer brand.

Castlemaine Tooheys was itself acquired by Alan Bonda former Americas Cup winner turned corporate titanin 1985, together with another prominent Australian brewer, Swan, which had been founded in 1857 near Perth by Frederick Sherwood. In 1928, Swan purchased one of its top competitors, Emu Brewery, giving the company a leading share in the West Australian beer market.

The acquisition of Bonds brewing interests instantly gave Lion Nathan a prominent place in the Australian beer market. In 1992, the company moved to boost its Australian position, buying up another major regional player, South Australian Brewing Company. Founded in 1888 through the merger of a number of existing Adelaide-based breweries, South Australian Brewing Company had launched a number of successful brands, including Hahn, Southwark, and West End, giving it a top position in that states beer market.

Company Perspectives:

OUR CORE PURPOSE: To make the world a more sociable place. OUR VISION: To boldly create the 21st Centurys best drinks Company by providing the brands, venues, services and experiences that make life more sociable. OUR VALUES: Acting with Integrity; Passion for our Business; Facing Reality; Helping Each Other; Being Sociable.

Turning Beer into Wine for the New Century

In 1994, Lion Nathan began seeking new geographic markets, turning to the potentially vast Chinese market. Rather than target the entire country, however, Lion Nathan sought to establish itself in a single area, settling on the Lower Yangtze River Delta region, which included the important Shanghai market. In 1995, the company found its first acquisition, the Taihushui Brewery, in Wuxi. The company initially purchased a 60 percent stake in the brewery, before increasing its holding to 80 percent in 1997 and then to 90 percent in 2000. In 1997, also, Lion Nathan formed a new subsidiary, Lion Nathan Beer and Beverage (Suzhou), with the intention of building a new A$125 million brewery in that city.

Lion Nathan established a new China headquarters in Shanghai in 1997, and in that year launched a new beer brand, Rheineck, which quickly acquired a 10 percent share in the Shanghai beer market. In 1998, the Suzhou brewery came online, and the company rolled out the Rheineck brand throughout the Lower Yangtze Delta region. The following year, the company stepped up its position in the region with the launch of the Steinlager super-premium label. That same year, Lion Nathan acquired the license to market Becks beer in the region as well.

Despite its optimism, however, Lion Nathans Chinese operations proved, as some sources described it, disastrous, in part because of the relatively low per-capita beer consumption in that country. Lion Nathan had meanwhile found itself in trouble in its home markets as well. The companys move into Australia had placed it in head-to-head competition with Australian beer icon Fosters. The companies engaged in a bitter war for market sharewith Lion Nathan coming out the apparent loser. From a 46 percent market share at the start of the decade, Lion Nathans share had fallen to below 40 percent at decades end.

Worse, the company found itself confronted with a slumping beer sector in both the New Zealand and Australian markets. By the end of the 1990s, beer consumption had dropped from some 120 liters per person per year in the mid-1980s to just 80 litersan alarming trend for a company wholly focused on beer. While Lion Nathans competitors rushed to snap up the regions wineriesas wine consumption showed steady rises, and Australian wines in particular had begun to gain international recognitionLion Nathan hesitated.

In 1998, Douglas Myers, approaching retirement, caused a stir when he brought in a new majority shareholder for Lion Nathan, in the form of Japans powerful Kirin Brewery. Said to be especially interested in Lion Nathans Chinese holdings, Kirin agreed to maintain its shareholding in Lion Nathan at around 45 percent. Myers retired, and was replaced by Gordon Cairns as CEO.

Cairns set to work rebuilding the companys market share in Australia, notably by acquiring a string of hotels in Victoria to shore up the companys position in that state. In 2000, the company moved its headquarters to Australia, and switched its primary stock listing to the Australian stock exchange. At the same time, the company began looking about for winery acquisitions.

New Zealands Montana Group, the countrys largest wine-maker, appeared a logical choice for Lion Nathan, which still retained its reputation as a New Zealand company. In May 2000 the company acquired 20 percent of Montana, increasing its holding to 28 percent by August of that year. In November of that same year, the company announced its interest in expanding its holding in Montana, but to only 51 percent. Yet the companys offer, of up to NZ$3.80 per share, fell short of a PricewaterhouseCoopers appraisal, which placed the value of the shares as high as NZ$4.64.

Lion Nathan was soon accused of having been too timid in its first winery expansion attempt. In February 2001, the company found itself outflanked in the Montana bid, when international giant Allied Domecq swooped in with a full takeover offer for Montana. Lion Nathan nonetheless managed to build a 63 percent stake in Montana, compared with Allieds 28 percent. But on orders from the New Zealand stock exchange, Lion Nathan was forced to sell off 19 percent of its holding. Finally, in August 2001, Lion Nathan conceded defeat and agreed to sell the remainder of its stake to Allied Domecq.

Key Dates:

John Campbell and William Brown found the Hob-son Bridge Brewery in Auckland, New Zealand.
Louis Ehrenfried founds the Albert Brewery.
The two companies merge to form Campbell & Ehrenfried, under leadership of Arthur Myers, Ehrenfrieds nephew.
Campbell & Ehrenfried merge with the Great Northern Brewery, which holds the Lion beer brand.
Campbell & Ehrenfried join the New Zealand Brewery consortium to fight against the prohibitionist movement.
Douglas Myer is appointed managing director of Campbell & Ehrenfried.
Myer gains control of Lion Brewery, which changes its name to Lion Corporation.
Lion merges with the LD Nathan retail group, becoming Lion Nathan; begins selling off retail and other holdings to focus on brewery operations.
Lion Nathan acquires 50 percent of Australias National Brewery, owned by Bond Corp., which includes Castlemaine Tooheys and Swan breweries.
Lion Nathan acquires full control of National Brewery; acquires South Australian Brewing Company.
Lion acquires 60 percent of the Taihushui Brewery, in Wuxi, in the Lower Yangtze Delta region of China (shareholding increases to 90 percent by 2000).
The company creates Lion Nathan Beer and Beverage (Suzhou) and begins construction of a new A$125 million brewery in that city, which is completed in 1998.
Japans Kirin acquires a 45 percent shareholding in Lion Nathan.
Lion Nathan moves its headquarters to Australia and makes its first attempt to expand into wineries, launching a takeover offer for New Zealands Montana Group, ultimately defeated by Allied Domecq in 2001.
Lion Nathan acquires Petaluma Ltd. and Banksia Wines Ltd., both winery groups in Australia.
Lion Nathan acquires marketing rights to Kirin Beer in the Lower Yangtze Delta Region.

Lion Nathan immediately began casting about for new winery acquisitions. By the end of 2001, the company had succeeded in locating two new acquisitions: Petaluma Ltd. and Banksia Wines Ltd., both in Australia. The Petaluma acquisition, which cost Lion Nathan A$229 million, also included the Argyle winery in Oregon, in the United States. By the end of 2002, Lion Nathan had completed the Banksia purchase, for some A$70 million, as well.

Lion Nathan also announced its interest in expanding its geographic focus, targeting premium winery acquisitions in North or South America, or South Africa. Meanwhile, Lion Nathans commitment to its Chinese brewery operation appeared to be paying off, as the company managed to cut its net losses at the turn of the century, with expectations of breaking even by as early as 2003. Meanwhile, the companys relationship with Kirin also was bearing fruit. In January 2003, the company announced that it had been granted the license to market the famed Kirin Beer brandone of the leading brands in Asiain the Lower Yangtze Delta region. Lion Nathan had not abandoned its brewing operations back home, however, acknowledging its interest in acquiring J. Boag & Son, located in Tasmania and owned by San Miguel, itself majority-controlled by Kirin Brewery Company.

Principal Subsidiaries

Auckland Vineyard Pty Ltd.; Banksia Wines Ltd.; Barserv Technologies Pty Ltd.; Bridgewater Mill Vineyards Pty Ltd.; Canterbury Brewery Ltd.; Castlemaine Perkins Pty Ltd.; Consac Pty Ltd.; Contract Bottling Company Ltd.; Freemantle Brewing Company Pty Ltd.; Hahn Brewing Company Pty Ltd.; Hawkes Bay Brewery Ltd.; Leopard Brewery Ltd.; Lion Nathan Australia Pty Ltd.; Lion Nathan Brands Company Ltd.; Lion Brewery Ltd.; Lion Nathan International Ltd.; Malt Shovel Brewery Pty Ltd.; Mitchelton Vineyards Pty Ltd.; National Brewing New South Wales Pty Ltd.; New Zealand Breweries Ltd.; New Zealand Wines and Spirits Ltd.; Petaluma Ltd.; Riddoch Estate Vineyards Pty Ltd.; Smithbrook Vineyards Pty Ltd.; The Captain Cook Brewery Ltd.; The South Australian Brewing Company Pty Ltd.; The Swan Brewery Company Pty Ltd.; Tooheys Brewing Company Pty Ltd.; The Victorian Wine Company Pty Ltd.

Principal Competitors

Altria Group Inc.; Philip Morris USA; Anheuser-Busch Companies Inc.; Groupe Danone; Kirin Brewery Company Ltd.; Asahi Breweries Ltd.; Suntory Ltd.; Interbrew SA/NV; Carlsberg A/S; Orkla ASA; Six Continents PLC; Allied Domecq PLC; Adolph Coors Company; Fomento Economico Mexicano S.A. de CV; Sapporo Breweries Ltd.; Dr. August Oetker KG; SABMiller PLC; Miller Brewing Company; SABMiller PLC; Molson Inc.; Grupo Modelo S.A. de CV; Coors Brewing Co.; San Miguel Corp.; Cia Cervejaria Brahma; Fraser & Neave Ltd.; Takara Holdings Inc.; Amsteel Corporation Bhd.; Carlsberg-Tetley Brewing Ltd.; Guinness UDV; BBAG Osterreichische Brau-Beteiligungs AG; Quinsa; Brasseries Kronenbourg SA; Holsten-Brauerei AG; Binding-Brauerei AG; San Diego Brewery Co.; Pepsi-Gemex S.A. de CV; Brauerei Beck GmbH und Co.; Hartwall Abp Oyj; Wolverhampton and Dudley Breweries PLC.

Further Reading

Australias Lion Nathan Looks to North, South America for Expansion, AsiaPulse News, July 15, 2002.

Lion Lifts the Glass to Confound Doomsayers, Daily Telegraph, August 26, 2002, p. 51.

Lion Nathan Looks to Buy Australias Banksia Wines, AsiaPulse News, December 20, 2002.

Michelmore, Karen, Brewery Boss to Bow Out, Advertiser, December 14, 2002, p, 71.

Parker, Selwyn, A Profit in His Time, Bulletin with Newsweek, April 27, 1999, p. 76.

Parkinson, Giles, Lion Nathan Bids for Winemaker Petaluma, Daily Deal, October 2, 2001.

M.L. Cohen