Alcopops maker Independent Liquor is on the block with expressions of interest being sought by its private equity owners by next week, according to The Australian Financial Review.
The AFR says investment bank UBS, on behalf of Independent Liquor's major shareholders - Australia’s Pacific Equity Partners and Hong Kong-based Unitas Capital (formerly CCMP Capital Asia) - is "quietly testing the market" on a number of potential deals ranging from a full sale to taking on a minority investor to help alleviate the company's debt position.
The two private equity groups took majority ownership of Independent Liquor, whose products include Vodka Cruiser and Woodstock Bourbon, through a NZ$1.26 billion leveraged buy-out in December 2006 following founder Michael Urceg’s death in a helicopter crash. Erceg’s widow, Lynette, retained a 13 % stake.
Shareholders subsequently tipped in just over NZ$30 million of equity to cut debt as the group’s borrowings were restructured.
The AFR suggests Japan's Asahi, Kirin and Suntory are likely to be taking a look at Independent Liquor, alongside China's Bright Foods, owner of Bright Dairy which in turn owns 51% of Synlait Milk, and Coca-Cola Amatil.
Accounts filed to the Companies Office by Independent Liquor's parent, Flavoured Beverages Group Holdings, shows the group's loss for the year to September 30, 2010 almost halved to NZ$22.7 million from NZ$43.9 million the previous year. Revenue fell NZ$7 million to NZ$414.4 million but cost of sales dropped almost NZ$25 million to NZ$197.3 million.
The group's net finance costs rose just under NZ$7 million to NZ$86.5 million on borrowings of NZ$692.7 million. The bulk of the loans are in the Australian dollar and the rest in New Zealand dollars. The financial statements say no banking covenants were breached during the September 2010 year.
News of the potential sale of Independent Liquor comes after another local firm bought in the overseas private equity feeding frenzy between 2005 and 2007, Metro GlassTech, hit the headlines last week. All bar one - WestLB - of Metro GlassTech's senior lenders have sold out of the company with hedge funds and Citibank paying 60 cents in the dollar for the debt.
Yellow Pages Group, another snapped up by private equity interests during the boom times, wrote off NZ$1.05 billion of debt earlier this year and Australia's Ironbridge, owner of TV3's parent MediaWorks, was forced to tip in NZ$70 million of equity in late 2009.
4 Comments
Unfortunately, this is what happens when interest rates are too low for too long and banks allow too much leverage.
These deals effectively imported cheap US debt and pumped up asset values because they could.
Low interest rates force people into dumb decisions.
And in many ways we're making the same decisions all over again.
Banks are offering 95% mortgages again and dropping their pants on mortgage establishment fees.
It's amazing how much you can afford to borrow when interest rates are 5.75% and your bank will lend you 95%.
To give you an idea of the power of low rates and leverage:
If you are allowed to borrow so that interest costs consume up to 30% of income, anyone with an NZ$80,000 income would be able to borrow up to NZ$417,000 and buy a NZ$439,000 house when interest rates are 5.75%.
With interest rates at 8% and an 80% limit on borrowing that means the most that could be afforded would be a NZ$300,000 loan and a NZ$375,000 house.
Same income but a 17% increase in the valuation of the asset that can be bought.
And what happens when interest rates rise and asset values fall?
Or will interest rates stay low forever, like they have in Japan?
cheers
Bernard
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