The takeover bid for Charlie’s reflects the positive and negative features of the New Zealand sharemarket.
Fortunately the positives clearly outweigh the negatives as the owners of Charlie’s have been well rewarded for hard work and good governance.
Asahi’s offer is a clear example of the “10,000-hour rule” outlined by Malcolm Gladwell in his book Outliers: The Story of Success.
Gladwell says the secret of success is for individuals to spend at least 10,000 hours on their chosen activity.
In other words, perspiration is a very important part of success and Charlie’s has had plenty of this, particularly from co-founder and chief executive Stefan Lepionka.
Charlie’s is not a mid-city high rise company, it is a down-to-earth organisation with a modest head office in Henderson Valley Rd.
The takeover offer proves that a sharemarket listing can be extremely rewarding for entrepreneurs with realistic growth strategies and a willingness to put in the hard work to achieve their dreams.
Charlie’s is also one of the NZX’s most successful backdoor listings and demonstrates that this form of listing can be rewarding.
The negative side of the $129 million takeover is that there isn’t sufficient equity capital or enough strong brand marketing companies in New Zealand to make a major contribution to our ambitious, internationally oriented organisations.
Charlie’s is making huge progress in Australia but to become a great company it requires more capital and the substantial marketing expertise that Asahi will bring.
Former NZX-listed Frucor Beverages, now owned by Suntory of Japan, is a good example of this.
Frucor’s revenue has risen from $228 million before the 2001 takeover to $405 million last year, and the company’s managing director Carl Bergstrom recently told TVNZ the company was aiming to double its revenue to $1 billion over the next five years.
This impressive performance has been driven by its best-selling energy drink “V”.
It is a pity we can’t continue to fund and contribute the marketing skills to Frucor, Charlie’s and our other ambitious enterprises that would enable them to become highly successful New Zealand, rather than overseas-owned companies.
Charlie’s NZX story began in 1983 when Crusader Minerals NZ listed on the sharemarket after a small capital raising. It changed its name to Spectrum Resources two years later.
The company, which was chaired by Peter Masfen, had several projects, including the reopening of the Monowai Gold Mine on the Coromandel.
Conservation Minister Helen Clark rejected the company’s Monowai mine licence application. This was a setback for Spectrum and it struggled to make headway throughout the 1990s.
In the late 1990s Spectrum had little more than a speculative nickel exploration operation in Vietnam and its share price plunged to 1c in 1998.
The company reinvented itself in December 1999 when it announced it would acquire information technology companies, particularly those involved in business-to-business e-commerce solutions.
At the same time it had a distribution of Asian Mineral Resources shares to its shareholders. Asian Mineral Resources, which owned the company’s nickel exploration assets in Vietnam, is now listed on the Toronto Stock Exchange and is 4.3 per cent owned by the NZX listed Widespread Portfolios.
The software developer WEL Technology, subsequently renamed Kinetiq, was acquired in 2000 and Demand Response, a provider of real time energy management services to the electricity industry, was bought three years later.
The move into e-commerce was unsuccessful and in February 2005, Spectrum announced that it was selling these operations for $472,802 and was acquiring Charlie’s Trading Company.
Charlie’s shareholders at the time were Stefan Lepionka and Marc Ellis with 36 per cent each, Gower Management Group 18 per cent and Simon Neal 10 per cent.
Lepionka’s first business – Stefan’s Fresh Juice Company – was established when he was 17 and was sold to Frucor in 1997.
Following this, Lepionka spent several years overseas, including trading fruit juice commodities in London for Dohler Natural Food & Beverage Ingredients and working as a consultant to the shareholders and directors of England’s leading fruit smoothies and fresh juice company, Pete & Johnny’s.
Spectrum Resources paid $11.66 million for Charlie’s Trading in the form of 145.75 million Spectrum shares at 8 cents each.
Before the acquisition Spectrum consolidated its share capital on a one for 10 basis. After the purchase Spectrum changed its name to Charlie’s Group, with the original Spectrum shareholders owning 17.4 per cent of the back door listing and Charlie’s Trading shareholders holding the remaining 82.6 per cent.
According to Howarth Porter Wigglesworth’s independent adviser’s report, “Charlie’s entered the New Zealand fruit juice market as the first ‘not from concentrate’ brand sold in both the chilled and ambient sectors of the market”.
The independent report included revenue forecasts of $16.3 million for the March 2007 year compared with revenue of $7.8 million for the March 2004 year.
Revenue for the 2007 year was $24.1 million, but this was boosted by the acquisition of Phoenix Organics in December 2005 for $10 million.
The Phoenix purchase was partly funded through the placement of 40.45 million shares at 12.93c each and Phoenix is now 35 per cent of group sales.
The key to Charlie’s success is Australia. In 2007 it acquired the beverage-manufacturing assets of the Australian Gallard and Mirage Group in South Australia. This spearheaded its drive across the Tasman and in October last year, Coles introduced the Charlie’s brand in 750 stores across the country.
Woolworths will sell Charlie’s nationwide from next month and the company is expecting its Australian revenue to exceed its New Zealand revenue in the year to next June.
Asahi’s takeover offer should be successful because the 44c is a 57 per cent premium to the pre-offer price, shareholders holding 52.17 per cent of the company have agreed to accept, and the directors have recommended shareholders accept “in the absence of a superior proposal and subject to the offer price being within or higher than the independent adviser’s valuation range”.
The only major conditions are that Asahi obtain acceptances for 90 per cent of Charlie’s shares and consent is received from the Overseas Investment Office.
If New Zealand had a “10,000-hour rule” award, it would go to Charlie’s, particularly Stefan Lepionka.
He and Marc Ellis appear to have invested no more than $140,000 each in Charlie’s Trading, but Lepionka will realise $18.25 million and Ellis, who is a non-executive director, will receive $17.87 million if the Asahi bid is successful.
This is an excellent return, particularly in the tough and highly competitive beverage industry, and demonstrates there is no substitute for hard work and strict adherence to the “10,000-hour rule”.