Lion Nathan - NZ's Lion Ready to Roar

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After this week's coup by Lion Nathan, capturing the brewing licence for Stella Artois, David Robertson, just-drinks Asia-Pacific correspondent assesses CEO Gordon Cairns moves to revitalise its recent flagging fortunes.

Lion Nathan has been making significant moves in the last month in both its main markets, Australia and New Zealand.

Its movement physically will be to switch its head office and primary sharemarket listing from Auckland to Sydney - a widely touted and expected shift. But its other moves have been more ethereal. Old stocks have been unpopular for some time; the old industries, like brewing, just can't compare to the sexy delights of the info-techs. The stagnant share prices of old industry companies are ample testament to the problem.

But Lion Nathan CEO Gordon Cairns has been talking up e-commerce opportunities for brewer. As he told two months ago plans are now in place to use an internal online ordering system, called People Planet, to link the hotel industry cutting overheads, the middlemen and reducing delivery times.

And on a grander scale Lion is talking to Fosters - its arch-rival in Oz - Coca-Cola Amatil and Heinz Australia to develop a bulk-buying syndicate. The idea has been borrowed heavily from the motor industry with the theory being that the traditionally rigid costs of the old industry stocks, including transport and storage and so on, can be cut by using economies of scale and e-commerce to keep track of stock. Cairns has wisely been pushing this idea as his own and if it works could produce some gains for all the companies involved.

But will the margins gained really be that significant? Does Cairns really think that global stockmarkets can be fooled into thinking that just because a few lumbering Australasian companies stagger into the 21st century that they deserve to join the internet share-price bonanza?

Of course stockmarkets are notoriously skittish so Lion could pull it off. But realistically the cost cutting will be relatively minimal compared to the overall business. And continuously seeking share improvements through cuts is a dangerous road to follow - look at British industry.

Brewing is an intensive industry. Lion can cut some corners but the internet cannot turn hops into beer - nothing there will change.

Analysts that spoke to were well aware of the intention behind e-commerce ventures by Lion but none were fooled. Many see Lion as a good secure stock: a "cash cow" as one put it. You can be sure Lion will shift a lot of units and the balance sheet should continue to look strong, but without setting the world on fire.

Analysts agree that the internet will provide some room for share price growth in the next couple of years. Domestic markets are solid and are likely to remain largely unchanged (although Foster's continues to harangue Lion in Australia) so there will be no share price growth domestically.

That leaves only two avenues left: industry consolidation or global expansion.

Cairns seems relatively popular with the Australasian institutions, he has a cheeky attitude that could persuade the major shareholders to throw money at expansion but he will have to overcome the China debacle. This operation is losing money (NZ$19m in the last six months) and one of the analysts said Lion had "buggered up that move". Any future expansion will have to be considerably more attractive than China has turned out to be.

That leaves consolidation. Any number of the big players would be willing to look at Lion Nathan but so far rumours have been limited. Kirin owns a stake but Lion also has a good relationship with Interbrew, particularly now Lion Breweries, the New Zealand arm of Lion Nathan, is to start making Stella Artois under licence.

It's all possible but the stumbling block will be Doug Meyers, chairman and a member of the founding family. Will he allow the company to be sold? If not Lion had better get a move on and kick its corporate advisers into high gear so it can hover up cheap wine makers, brewers and spirit companies.

David Robertson

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