So the biggest news story in the craft beer world this week has been Lion’s takeover bid for Little World Beverages. The back story is this; Lion which is owned by Japanese based Kirin Holdings have always owned about a third of Little World Beverages (who brew Little Creatures range as well as White Rabbit) and they have made a move to buy the remaining two thirds for about $380 million and some change. Little World Beverages (LWB) have advised their shareholders to accept the offer.
This of course has got people asking some questions…
Will Lion change Little Creature’s beer?
I don’t see any reason why you would. People seem to think that Lion will ‘dumb it down’ and produce another bland generic beer, but why the hell would they? They have plenty of these already and as any marketing student will tell you it’s easier to launch a new brand than it is to change perceptions of an old one, you dumb down Little Creatures and you lose the existing customers and chances are you don’t pick up too many new ones.
Little Creatures offers Lion ready-made market share in the only segment of the beer market that is growing, why would you mess with that?
At more risk than the flagship Pale Ale are the single batch beers, I’m not convinced these brews would make economic sense in isolation, but I’m also sure that Lion and LWB are smart enough to work out that these are ‘Halo’ beers, that is these beers say Little Creatures are innovative and adventurous and interested in quality and those attributes are conferred across the entire range. Also they are classic opinion leader beers, they get people like you and me talking. So there is plenty of upside here even if it’s not profits.
What is it likely to mean for drinkers?
I think you’ll find it’ll be much, much easier to get Little Creatures, particularly on tap. One of the things I’ve always lamented is that Little Creatures is, generally speaking hard to get on tap, even if you walk into a Lion or un-contracted pub, at least in Melbourne. Fat Yak has proven if you make good beer available to the public they will drink it.
What is it likely to mean for the Industry?
Well there are two schools of thought here. Firstly the positive, the theory goes that Little Creatures is a ‘gateway beer’ if you can get people drinking that then eventually they will move through to the smaller and often more extreme craft brewers. The negative approach says that if Little Creatures gets better distribution, particularly in pubs it will take up tap space from the smaller craft brewers. This is the Fat Yak situation. If you have a publican who wants ‘something for craft beer people’ and your usual supplier, Lion and/or CUB can give you that in Fat Yak/Little Creatures Pale, then why look any further and introduce the hassle of dealing with another supplier?
But is this Un-Australian, Little Creatures are now Asian.
Ignoring the undercurrent of racism I always feel with these types of comment, if you feel that way don’t drink Little Creatures, but also don’t drink Sierra Nevada, or Mikkeller, or Epic, and don’t drink anything with imported ingredients and put down that iPad and stop driving your car and I’m guessing that shirt you are wearing isn’t made in Australia either and stop reading the internet, it might contain stories that were written overseas. We live in a global community, get used to it.
If you want to understand the realities of ‘overseas ownership’ and its impact here is a good article you could read written by my ‘much smarter than me’ brother:
What does this say about Lion?
Now I’m no financial genius and I’m not going to give you stock advice, but I think Lion are paying well over the odds for LWB.
If you know anything about the investing concept of intrinsic value and you looked at LWB financials you would see that even at about $3.20 a share it was trading at a premium to its real value. Lion are then paying a premium of 40% over this share price. Therefore by my reckoning they are paying at least 50% over the odds for LWB. Why? Possibly Lion are morons, more likely they see value beyond what is there at the moment. This means they are very confident that there is growth to be had in the craft beer market for a while, as well as the Little Creatures brand. I would also suggest they are very keen to get their hands on the brewery down at Geelong that LWB are building, which would give Lion a brewing footprint in Victoria, which could save them all sorts of cost across the larger Lion portfolio.
What does it says about investing in beer?
It’s also worth noting that there are going to be some seriously cashed up people who love beer. By my reckoning the six directors of LWB are going to pocket about $150 odd million between them and I’m guessing there are whole heap of other beery people (sadly not me) who owned shares in LWB who have just made a healthy little profit. LWB was/is a well run company that were making consistent profits and growing strongly, and anyone holding shares has made good money. This nicely proves to investors that there is money to be made in craft beer, which should prompt investment in craft breweries across Australia.
Someone asked me on Twitter how I felt about the takeover and I responded that I was nonplussed, and here’s why; I suspect that the next time I crack open a bottle of Little Creatures Pale Ale on a Friday afternoon at my desk (as is my want) and take the first sip I will think to myself again ‘Gee that’s a good beer’ and let’s face it, that’s the most important thing.