Lion Nathan and Coca-Cola Amatil Merger Discussions

Lion Nathan believes the proposed combination would create significant benefits for shareholders of CCA and Lion Nathan, as well as other partners including The Coca-Cola Company.

17/11/08 Lion Nathan Limited confirmed that it is in discussions with Coca-Cola Amatil Limited (“CCA”) regarding a potential merger between Lion Nathan and CCA where Lion Nathan would acquire all of the issued shares in CCA via ascheme of arrangement.

The combination of Lion Nathan and CCA as proposed would create:
- The leading Australian and New Zealand beverage company, with a strong and diversified business comprising leading brands spanning almost all drinking occasions including beer, soft drinks, spirits and fine wine;
- A conservatively geared group, with a strong balance sheet and significant growth opportunities;
- A combination of best in class routes to market in each company’s respective areas of alcoholic / non-alcoholic focus.

Lion Nathan intends to maintain separate alcoholic and non–alcoholic beverage businesses to ensure that the growth momentum of the respective businesses can be continued (including in respect of The Coca-Cola Company brands) and as such Lion Nathan would seek to retain CCA’s key operational management. It is proposed that the current Chairman and CEO of Lion Nathan will lead the combined group and that two CCA non-executive directors will be offered non-executive board seats in Lion Nathan. Lion Nathan believes the proposed combination would create significant benefits for shareholders of CCA and Lion Nathan, as well as other partners including The Coca-Cola Company.

The proposed offer consideration is $6.15 in cash plus 0.469 Lion Nathan ordinary shares per CCA share which implies a total equity value for CCA of approximately $8.0 billion (including share options), with a consideration mix of approximately $4.5 billion of cash and approximately 346 million Lion Nathan ordinary shares.

The cash component of the proposed offer consideration ($4.5 billion) will be financed via:
- A fully committed placement to Kirin Holdings Company, Limited of up to 327 million new Lion Nathan ordinary shares at a subscription price of $11.50 per Lion Nathan ordinary share1. The placement will raise approximately $3.76 billion of cash, will require 2 of 5 Lion Nathan shareholder approval and is conditional upon the proposed merger proceeding;
- A limited amount of transaction debt (approximately $800 million) for which Lion Nathan has obtained committed bank facilities. The debt raised by Lion Nathan is sized to ensure that the combined business has a strong balance sheet and significant financial flexibility going forward.

The value of the Base Offer is $10.80 per CCA share (“Base Offer Value”) which reflects the effective “uplift” in the value of Lion Nathan scrip received by CCA shareholders as a result of the placement of Lion Nathan shares at a premium to the current market price. Based on Lion Nathan’s share price of $8.95 per share as at 14 November 2008, Lion Nathan’s Ex-Placement Price (“EPP”) will be $9.92 per Lion Nathan share. The Base Offer Value is summarised in the table below.

The Base Offer Value represents:
- A premium of 31% to the closing CCA share price of $8.25 on Friday 14 November 2008.
- A premium of 31% to CCA’s volume weighted average share price (“VWAP”) 6 since the release of its third quarter results on 16 October 2008 of $8.24 as at Friday 14 November 2008.
- A premium of 31% to CCA’s one month VWAP of $8.24 as at Friday 14 November 2008.
- A premium of 27% to CCA’s three month VWAP of $8.51 as at Friday 14 November 2008.
- A premium of 36% to CCA’s six month VWAP of $7.95 as at Friday 14 November 2008.

The proposed consideration mix under the Base Offer (approximately 60% cash/40% scrip) would provide CCA shareholders with both an attractive cash premium and an ongoing participation in the benefits of the merged group. Lion Nathan has also proposed a mix and match facility which would provide CCA shareholders with the opportunity to select either the Base Offer (which is $6.15 cash plus 0.469 Lion Nathan ordinary shares per CCA share), Maximum Cash Consideration (representing $10.25 cash per CCA share), or Maximum Scrip Consideration (which is 1.171 Lion Nathan ordinary shares per CCA share valued at $11.61 per CCA share based on an EPP of $9.92). Both the Maximum Cash Consideration and the Maximum Scrip Consideration are subject to scale back. The proposed combination is expected to realise synergy benefits in a range of $100 to $130 million per annum (on a pro-forma basis) and satisfies all of Lion Nathan’s acquisition criteria. The proposed transaction financing would result in a conservatively geared merged entity balance sheet.

If the proposed merger is successfully completed, Kirin’s resulting shareholding in Lion Nathan will be 47.5%, up from 46.1%, and Lion Nathan and Kirin intend adopting replacement “Partnership Principles”, consistent with Lion Nathan’s and Kirin’s existing Partnership 3 of 5 Principles. These principles are intended to ensure that the merged entity continues to be run as an Australian business with the majority of the board of directors being independent.

The Board of Lion Nathan has sought the Board of CCA’s endorsement and recommendation of this proposal, which it firmly believes is in the best interests of both CCA shareholders and Lion Nathan shareholders.

The merger would require the approval of a range of regulatory authorities including the ACCC, the NZCC, the FIRB, and would be subject to other customary conditions for a transaction of this nature. It will also require the support of both Lion Nathan shareholders (in relation to the placement) and CCA shareholders (in relation to the scheme of arrangement) in separate shareholder meetings. There is no certainty that a transaction will proceed or be consummated on the terms currently proposed.

Lion Nathan will announce its annual results for the year ended 30 September 2008 tomorrow.

Lion Nathan has engaged Caliburn as financial adviser, Deutsche Bank as broker to the offer, and Mallesons Stephen Jaques as legal adviser.