PE firms settle with Asahi over Independent Liquor sale
Pacific Equity Partners (PEP) and Unitas Capital have agreed a private settlement with Asahi over the sale of Independent Liquor that means the dispute will not proceed to trial.
According to The Australian, an apparent breakthrough in negotiations came on the first day of scheduled hearings and the judge adjourned the case for a week to allow the parties to formalize a deal. There are also a series of counterclaims involving other groups that have yet to be resolved.
Asahi bought Independent Liquor from PEP and Unitas in 2011 for NZ$1.5 billion ($1.5 billion) but then sought damages from the private equity firms, claiming they had overstated the portfolio company's earnings by more than 30% ahead of the sale. It said PEP and Unitas had resorted to "channel stuffing" to artificially inflate earnings and also withheld information about declining earnings.
The PE firms dismissed the allegations as untrue and unfounded. They filed a cross claim against two senior Asahi executives in Australasia, saying that they were directly involved in the preparation of the earnings estimates being questioned.
The Independent Liquor 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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