Lion Nathan burst onto the Victorian pub scene in late 1999 in a $70 million blitz but two years later they are trying to sell many of the venues at half the inflated price they paid. A couple of insiders have put Crikey at the forefront of this story.

It’s the great Victorian pub firesale so if you don’t mind copping a 10 year supply deal to sell Tooheys and Hahn, get in touch with the Sydney head office of the Japanese controlled brewer.

Lion Nathan Subscriber update on March 4

An insider writes:

This may take a little digging to confirm, but it’ll be worth the effort. A while ago Lion Nathan, via Tooheys, decided to give CUB a serve in the Victorian beer market. To do this they did the obvious PR stuff of sponsoring any and all racing, footy, sport event they could outbid on. The screw-up with naming rights to the Spring Carnival/ Melb Cup was a harbinger of things to come. They also went out and bought a pile of outlets around the state. Something like 50 odd pubs/ bars nightclubs etc at a cost of around $70million. They assigned a couple of execs to oversee the formation of a company to buy and run these joints. Called it HMC Ltd. The guys that did this were beer company blokes and knew not a lot about actually running these sort of venues nor did they have a clue about valuing them for purchase. They used an accounting firm to value targets ( I think it was Andersens) but they used the standard industry formula to value which takes no notice of the entrepreneurial nature of a lot of the operators whose personal following does not stay with the change in ownership. In other words, the goodwill component was vastly overvalued in a lot of the trendier bars and clubs. So they paid way too much for most of their portfolio.

Put this with the fact that they are absolutely clueless on the operational side and the venues were dropping like flies. Currently only about 20% of their assets make an operating profit so even though Lion Nathan picked up market share, HMC is bleeding from every orifice. They are delaying payment on some invoices to preserve cash flow and some of their pubs are losing 5 to 10 grand a week. So they are selling off all these non-performers at huge capital losses but the best bit is that the people who put all this in place are being shifted sideways in the organisation and keeping their 6 figure packages. One even bought a venue for almost nothing after he’d supervised it dropping turnover from 40 grand a week to less than 10. This a place they paid $2.8 mil for the freehold. He gets a low rent and almost no ingoings. There’s more and I can name names and venues.

ends

A different insider provided this update for subscribers on March 7

Japanese controlled brewing giant Lion Nathan are DESPARATE to get out of the 50 Victorian venues they bought in 1999-2000 but their sale strategy is to lump good and bad venues together and sell for half price (if that) along with an exclusive Lion Nathan supply deal (10 yr minimums). Most if not all of the venues are being offered to current managers first and foremost – that’s the same people who made a mess of them in the first place.

After splurging about $70 million, only about 20 per cent of the venues are making money. And guess who signed the cheques splurging all this money. Yep, none other than good old Mark Mentha from Arthur Andersen who has also managed to blow about $150 million keeping Ansett in the skies for 5 months.

Mentha and his team massively overvalued goodwill, which disappeared as soon as the venue operators walked out with their seven figure cheques. Some venues went for what you would say is extraordinary prices, others for fair market value. The difference seemed to be in certain areas – Clarendon St South Melbourne venues were all bought for massively inflated prices to gain a monopoly on the area, while most of the others were not.

Lion Nathan seems to have been completely clueless when it came to running venues. The pub and nightclub business is not and has never has been about selling beer, it has always been about music and entertainment. The sale of alcohol just happened to be the largest revenue stream from this activity. That is unless you are a morality free zone like Foster’s and base your entire strategy around poker machines which Lion Nathan has not done.

(Incidentally, Foster’s are the biggest pokies operators in Australia with about 6000 machines and it would come as no surprise to hear they led the campaign in NSW which resulted in today’s story in the Sydney Morning Herald about a complete Labor backdown on pokies clamps. Remember it was Labor who buckled on the beer excise increases also, proving that they are happy to be known for being soft on the sin lobby.)

Marketing and production activity in pubs and nightclubs is almost the most frenetic of any industry. If there’s a secret to the hospitality industry, it is to give as much brilliant music, entertainment, love, care and respect to your customer as possible, and you never know, they might hang around and buy a drink. But obviously Lion Nathan thought it was about branding the venues with Tooheys and giving the product away, hoping this cheap and desperate ploy would lure more punters, as if it was the beer they were there for…

Sealed Section to Subscribers on Friday, March 8

When Lion Nathan called in the two Marks from Arthur Andersen to co-ordinate a $70 million buying binge on the Victorian pub and club market a couple of years back, they recruited a chap called David Carruthers from a major UK brewer to come over and run the operation.

It is fair to say that David was not successful and one of the issues was his inter-personal skills which could have been a little friendlier.

Well Lion Nathan decided they wanted to see the back of David but the lad had fallen for Melbourne and especially St Kilda. So guess what the settlement included? Yep, David picked up the ultra-groovy Dog’s Bar in St Kilda for a cheap price as part of his golden parachute. Not bad if you can get it. Shame Lion Nathan shareholders paid about double the price two years ago.

Sealed section to subscribers on March 21

LION NATHAN’S VICTORIAN PUBS STRATEGY

Two things have happened with the Lion Nathan pubs yarn in Victoria. Firstly, their spindoctor has been in touch sounding out the possibility of us “having a drink” and, secondly, The Age ran this yarn in their Epicure section on Monday which appears to be a denial from the brewer that they are looking to sell:

“Like the man who bought the shaver company, former Hospitality Management Company (Lion Nathan) chief executive David Carruthers has bought the freehold and business at Dogs Bar from his old employer as part of his departure settlement with the group. Carruthers was recruited from a British brewer to oversee Lion Nathan’s purchasing assault on the inner-city pubs and bars of Melbourne several years back. According to Steven Mayne’s Crikey.com, “David picked up the ultra-groovy Dogs Bar in St Kilda for a steal as part of his golden parachute. Not bad if you can get it. Shame Lion Nathan shareholders paid about double the price two years ago.”

Carruthers says he’s not going to change much about the place he calls “the St Kilda local” other than apply “some TLC and get back to core values”. A new chef, Angelo Italia, has just started. According to Crikey, Lion Nathan is trying to sell other pub/club businesses it acquired as recently as 2000, including Veludo, Provincial and The London. Lion Nathan says it is, in fact, “actively looking to make…selective acquisitions of venues” that fit with its beer strategy. “The 46 hotels we own in Victoria will continue to be managed by the Hospitality Management Company (HMC) for the foreseeable future and we will do nothing to diminish our ability to distribute our beer brands through these venues.”

We had a polite chat to the Lion spindoctor on Friday night at the Quill Awards and the line being taken is that they are looking to shuffle the portfolio with a view to selling more beer. The current market share is 15 per cent in Victoria and they’ll be looking for this to higher before the pubs strategy could even be called vaguely successful.

The 45 pubs Lion Nathan bought in Victoria

21 Arms Hotel, Ballarat

Albert Park Hotel, Albert Park

Builders Arms Hotel, Fitzroy

Byblos Cafe51 Bar (formerly Station Bar), Prahran

Canada Hotel, Carlton

Casey’s Nite Spot, Hawthorn

Cherry Tree Hotel, Richmond

Clarendon (formerly Intrepid Fox), Sth Melbourne

Clude Hotel, Carlton

Court House Hotel, Bendigo

Darby Ogills, Bendigo

Dogs Bar (Hotel Columbo), St Kilda

Eclipse Nightclub (Royal Mail Hotel), Bendigo

Felix Bar, St Kilda

Geebung Polo Club, Hawthorn

Geebung Polo Club, Flemington

Geelong Hotel, Geelong

Golden Gate Hotel, Sth Melbourne

Governor Hotham Hotel, Hawthorn

Grace Darling Hotel, Collingwood

Hogs Breath Cafe51, Ballarat

Imperial Hotel, Sth Yarra

Limerick Arms Hotel, Sth Melbourne

Melbourne Depot, Richmond

Metro Nightclub, Bourke St City

Molly Blooms, Port Melbourne

Naughtons Hotel, Parkville

Perseverance Hotel, Fitzroy

Preston Hotel, Geelong

Prince Alfred Hotel, Carlton

Provincial Hotel, Fitzroy

Queensberry Hotel, Carlton

Rattle n Hum, Ballarat

Red Eagle, Albert Park

Richmond Club Hotel, Richmond

Rob Roy Hotel, Fitzroy

Sante Fe Hotel, Melbourne

Star Bar, Bendigo

Studio 54, Bendigo

The London Bar Cafe51, Port Melbourne

The Match Bar and Bakehouse, Bendigo

The Max Hotel, Geelong

Tonic Lounge Bar, Bendigo

Veludo Bar Restaurant, St Kilda