Coopers, the South Australian brewer currently the target of a takeover bid from Lion Nathan, has called an extraordinary general meeting where shareholders will vote to prevent Lion Nathan from ever buying shares in the company. David Robertson reports on the latest developments in a takeover battle which grows more acrimonious by the day.

When it comes to ill-tempered disputes in the drinks industry the staid duopoly of the Australian beer market certainly doesn't spring to mind but Lion Nathan's hostile takeover bid for minnow, Coopers, has degenerated into acrimony.

The A$420m offer has sent both parties to court on numerous occasions and prompted an exchange of personal jibes between the respective headquarters in Sydney and Adelaide. Coopers managing director, Tim Cooper, noted a couple of weeks ago that "the level of hysteria from" his opposite number at Lion Nathan, Rob Murray, "seems to increase daily".

And Cooper will have no doubt irked Murray further today (29 November) by suggesting at the South-Australian brewer's AGM that few Coopers shareholders appeared interested in Lion's money. "We're very happy having had the AGM today because there was good turnout of shareholders, and the mood of the shareholders was buoyant and optimistic," Cooper said. "They're optimistic on the grounds that they're feeling that not many shareholders are moving camp (in favour of accepting Lion Nathan's bid). "They're staying firm, and there's a mood of optimism surrounding the financial performance of the company and the prospects of the company."

Lion Nathan, meanwhile, is accusing Coopers' directors of buying up cheap shares at the expense of minority investors. A source familiar with the negotiations told just-drinks: "This whole thing has got very ill-tempered. Lion Nathan feels that the Coopers' directors have ignored their duties to shareholders year after year."

And all this over a company with less than 2% of the Australian beer market.

The relationship between Coopers and Lion Nathan, which, with Fosters, controls about 96% of the Australian beer market, began in 1993 when Lion bought SA Brewing. As part of that deal Lion picked up 19.9% of the family-run Coopers brewery. In 1995, Lion sold its stake back to Coopers and received as part of that deal the right to bid for shares in the future. Coopers has an archaic ownership constitution that requires any of its 117 shareholders wanting to sell to offer stock to other Coopers shareholders first. Then AMP, which runs the company pension fund, gets a shot and, finally, Lion Nathan. Bizarrely, nobody else can buy Coopers shares.

During recent years, Coopers has been performing extremely well, particularly with its Pale Ale, which has taken a 7.7% share of the rapidly growing premium beer sector. Last year, Coopers increased earnings by 41.5% and Lion began to realise that the South Australian brewer could be even more successful within a more comprehensive distribution network - like its own.

Lion insiders insist that the Sydney-based company tried to strike joint venture deals with Coopers, offering to distribute the brands outside of Coopers' home state. "You name it, we offered it," a source said.

But Coopers had no interest in dealing with Lion Nathan, despite the company's unusual shareholder "rights". Instead, Coopers' directors have decided to remove Lion Nathan's rights completely and go it alone.

An emergency general meeting of Coopers' shareholders on 7 December will vote on whether to rewrite the company's constitution and prevent Lion Nathan ever buying shares.

As it stands, the Lion Nathan deal is worth A$310 a share, valuing Coopers at A$420m. This is an increase on Lion's initial offer, made on 1 September, of A$260 a share. The bid was raised after an independent valuation commissioned by Coopers put the price at between A$284 and A$320.

Lion Nathan points out that its A$310 offer is at the higher end of the Coopers independent valuation and significantly above the A$260 a share determined by KPMG, Coopers' auditors. KPMG has also said that the A$260 price is dependent on Lion's involvement - if Lion goes, the shares could be worth just A$190 each, potentially wiping A$160m off Coopers' value.

This is the point that Lion Nathan has been making to Coopers' shareholders. Lion Nathan has also been illustrating how Coopers' directors have been increasing their own stake in the business for considerably less than outsiders are now offering.

Directors have been able to buy shares in recent years for between A$16 and A$45 each because the company's constitution prevents anybody else bidding. For example, if a seller wants to unload shares he/she must first offer them to the 116 other shareholders - the most active of whom are linked to the Cooper family. Even if a low offer is made the seller cannot then go to another buyer (AMP or Lion Nathan). If the seller asks for an independent valuation he/she must accept that price and sell.

Given that the Cooper family and its friends now control about 50% of the company it seems likely that the Lion deal will collapse. "We're in a difficult position but we're still alive," insisted a Lion Nathan insider.

But even if the deal does collapse Lion Nathan will feel justified in forcing this issue. There is a feeling in Lion's HQ that the activities of the Coopers directors needed to be exposed and Lion's involvement should certainly improve conditions for minority shareholders: Coopers has had to agree to increase its dividend; it is offering to buy back up to 15% of the company's shares at A$260 each; and it is also promising more share buybacks in the future.

"This will gear them up and force them to compete more evenly with Lion Nathan and Fosters," said a source familiar with the negotiations. However, as we close in on the 7 December EGM, it is possible that Lion Nathan has one more card up its sleeve: a trump offer of A$360 a share.

Lion Nathan is desperate to win now - to teach the Cooper family a lesson, if nothing else - and even this higher bid would not stretch a company of Lion's size - its market capitalisation is over A$4bn. It is hard to imagine that the Cooper family would turn down such a lucrative offer, even with all the bad blood that now exists between the two parties.