PEP, Unitas file counter claim over Independent Liquor sale

Asahi claims that PEP and Unitas overstated Independent Liquor's earnings by more than 30% ahead of the NZ$1.5 billion (then $1.5 billion) sale and is seeking damages for breach of either the Australian Consumer Law or Corporations Act. The PE firms have dismissed the allegations as untrue and unfounded.

According to The Australian, the cross claim cites Greg Ellery and Julian Davidson, Asahi's Australia and New Zealand heads, respectively, alleging that both men were directly involved in the preparation of the earnings estimates that are being questioned. Independent Liquor's former CEO and CFO, Peter Murphy and Nick Montague, have also been joined to the case.

Asahi claims the PE firms resorted to "channel stuffing" to artificially inflate Independent Liquor's earnings. This involved providing incentives to customers to bring forward purchases that would otherwise have fallen in later accounting periods, pushing up the company's EBITDA figures.

The Japanese firm also alleges that information about declining earnings was not disclosed.

Asahi claims it was led to believe that Independent Liquor's EBITDA for the year ended September 2011 would be NZ$125 million and that earnings were on an upward trend. The claim states the forecast for the period should have been NZ$83 million. Asahi wants to be compensated for the difference in earnings estimates for this and other years.

PEP and Unitas say that Asahi and its advisors had access to all the relevant facts during a three-month due diligence process.

An Australian Federal Court last October upheld a claim by the private equity firms that several thousand documents pertaining to the transaction would not be released to Asahi in support of its case.

The sale was run as an auction, with Asahi's domestic rivals Kirin and Suntory also said to have submitted bids. The deal valued Independent Liquor at 13x EBITDA, broadly comparable to the 12.5x valuations of Kirin's A$3.3 billion ($3.1 billion) buyout of Australia's Lion Nathan in 2009 and SABMiller's A$9.9 billion purchase of Foster's in September 2012.

However, Australia and New Zealand had both taken legislative action - tax hikes and alcohol content limits - against ready-to-drink (RTD) alcoholic beverages as part of efforts to curb binge drinking. Independent Liquor relies on RTD beverages for a significant portion of its revenues and so inevitably took a hit, as did its competitors.

Asahi logged a one-time charge of JPY8 billion ($78 million) in its 2012 annual report to cover losses on the Independent Liquor deal.

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• Topics
• Exits
• Consumer
• Australasia
• Pacific Equity Partners
• Unitas Capital
• Consumer
• Australia
• New Zealand
• Trade sale
• Exit