Have faith in strength of market, says Lion

Lion Nathan insists competition in the New Zealand beer, ready-to-drink and spirits markets would not be substantially reduced if it bought Independent Liquor.

In an application to the Commerce Commission seeking clearance to buy possibly up to 100 per cent of Independent, the Australasian brewer said it understood that not all of Independent might be sold.

Yesterday's release of the application came after Lion had this week confirmed months of speculation by saying it was interested in a purchase.

Buying Independent would particularly help Lion expand into the ready-to-drink (RTD) market in Australia.

The application said the aim of the potential purchase was to create "an even better and more efficient Australian-based liquor business" to compete with the likes of Foster's, DB, Pernod Ricard, Diageo and Maxxium.

But Lion has stressed it does not have enough information to know whether it will definitely make an offer.

Independent has also said no firm decision on selling has been made. No formal sale process has yet started.

A price tag of between $700 million and $1.2 billion has been floated for Independent.

Lion's application said it understood that the parts of Independent that might be sold were Independent Beverages (NZ), which carries out RTD and spirit production and distribution, and Independent Breweries, which makes and distributes beer.

Other parts of the group included Independent Distillers, Waihopai Valley Vintners and Phoenix Vintners but it was unclear whether they would be sold.

However, Lion Nathan said: "No other relevant entity is expected to continue to own over 10 per cent of the shares in Independent Liquor after the potential acquisition, although the precise structure of any potential sale of Independent Liquor is still unknown."

The application said 90 per cent of Independent is held by the estate of founder Michael Erceg, who was killed in a helicopter crash last November.

The rest is held by Independent group trustees.

Companies Office records show Erceg's widow, Lyn, as one of two directors of Independent Liquor.

Lion - which produces and imports beer, RTDs and spirits in New Zealand - said the alcoholic beverages markets here were "extremely competitive" due to the number and character of existing operators and the low barriers to them expanding product ranges into new market segments. This was particularly true for RTDs and beer.

For example, DB had just launched an RTD, Foster's had the expertise and capability to grow market share quickly, and 42 Below had announced its entry into RTDs.

There were significant RTD imports from Australia.

The power of national retailers would also help stop a substantial reduction of competition if a Lion purchase of Independent went ahead.

"Some retailers are already importing beer products directly, showing a willingness to expand their own successful brand-type strategies into this category. Lion therefore does not consider that the potential acquisition would have the effect of substantially lessening competition in any relevant market."

A commission decision on the application is due by July 17 but this deadline can be extended if the complexity of the issues necessitates this.

If Lion does get clearance it might still have to contend with a range of rival bids, as there is said to be significant interest from others.

Also, analysts have warned against Lion paying too much simply to gain market share.

Lion shares closed 5c down at $9.50 on the NZX yesterday.

The claims

* NZ alcoholic beverages markets "extremely competitive".

* No substantial reduction of competition if Lion buys Independent.

* National liquor retail chains would help ensure strong competition if deal went through.