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Charlie’s juice sells up for $129m but stays ‘honest’—updated

Kiwi juice company Charlie's says accepting a foreign takeover was “inevitable”, but there won't be any redundancies or closures. And for shareholders who bought into the company in 2005, this week's deal with Japanese drink giant Asahi represents a 340 percent total return. Good - but is it good enough?

Another icon-in-the-making has bit the dust. The sale (tbc) of Charlie's to Japanese brewer giant Asahi yesterday is a great deal for shareholders, netting a delightful 340 percent ROI. But is it good for New Zealand?

The cash sale of Charlie’s Group for the princely sum of $129.3 million was accepted by Lepionka and co-founders Marc Ellis and Simon Neal, who founded Charlie’s in 1999. The lads’ have a fine story of humble beginnings, Kiwi nous and the savvy low-budget marketing.

But along with the cash goes the opportunity to create a global Kiwi-owned brand. You can hardly begrudge them and there are plenty of precedents: Glaxo, Lion, Navman, 42 Below—all Kiwi-founded companies with global ambitions and now foreign ownership. But there are also plenty of entrepreneurs determined to stay in the game for longer than a decade. Villa Maria's George Fistonich is still defiant after almost 50 years. Fistonich's legacy of long term private ownership is unfortunately a rarity.

For his part, serial entrepreneur and current chief executive of Xero, Rod Drury, says the deal should be celebrated and he's not one for speculating on whether or not the time was right to sell.  

“It’s very cool, it’s another great New Zealand success story and I’m incredibly proud of the guys.”

Selling up and moving onto the next venture is part of the natural entrepreneurial life cycle, he says, and we should be watching with anticipation to see what the Charlie’s boys will do next with the capital they raise.

And Drury should know. He's started up and sold many a company, and says he managed to do so by utilising the knowledge he gleaned from each venture, together with the capital raised from the sale, to set up the next venture. And without that life cycle and constant growth, he says he wouldn't have Xero.

“Businesses are vehicles for entrepreneurship.”

Lepionka is upbeat. Despite the sale, there are no redundancies and the headquarters remain in New Zealand along with the Phoenix bottling plant in Waitakere, Auckland. Lepionka will stay on as CEO.

“We can celebrate a great New Zealand story that’s being taken to the world platform,” Lepionka says.
“To be able to stand there with hand on heart this morning and tell staff in New Zealand and Australia that nothing’s happening, no redundancies, business as usual, no plant closures… this is the best deal.”

But Lepionka knows better than most just how ownership matters. His last company, Stefans, was swallowed by Frucor and then closed down much to his dismay. Asahi seem to have different plans which is good news but what a shame for the founders and for New Zealand that continued ownership in what must be the beginning of global expansion will be denied by this deal. Must these deals be 'inevitable'?

That said, what a great achievement. Asahi’s local unit has offered NZ$0.44 in cash for each share in Charlie’s Group Ltd, which encompasses both the Charlie’s and Phoenix beverage brands.

The offer represents a 57 per cent premium on Charlie’s share price, which closed on Friday at NZ$0.28, meaning the company has tripled its stock price since listing in 2005. The offer comes on the back of securing a strong foothold in the Australian market, launching their products in supermarket chains Coles and Woolworths in the past year.

“Our internal budgets were to get about one or two percent market share but overnight it went to nine or ten percent, which is a big slice of any market," Lepionka recently told NZ Marketing.

He puts the sudden surge in popularity in Australia down to the fact that his quest for quality has delivered a unique product in that market. The big players, he says, “just punch stuff out”, but Lepionka is something of a juice purist; a man with premium fruity convictions. 

“We only want to play with the best ingredients. But it's a choice, and that choice comes at a price. We could use cheap, artificial ingredients that you can buy off the shelves, but the only way we've been able to do this is to build a factory in Australia right next to the biggest privately owned citrus orchard in South Australia and then squeeze it into a bottle. It's almost unheard of."

As well as its not-from-concentrate juices and quencher ranges, Phoenix Organic Juices, the only company Charlie's has acquired, has also made it onto the Coles Australia shelves.

Yesterday Charlie’s Group affirmed a net profit of between $2.2 million and $2.5 million for the year ending June 30. The board expects sales to continue to climb, with an estimated net profit of $7.1 million over the next 12 months.

Charlie’s products currently reach 14 countries, and Lepionka says the sale will allow the company to expand into more international markets.

Chairman Ted van Arkel says the offer strongly endorses Charlie’s market position. “Asahi’s intended offer represents a very strong premium over market for shareholders to consider,” he said in a statement. Asahi, the largest brewer in Japan, manufactures alcoholic beverages and soft drinks, with a head office in Tokyo and nine breweries across Japan. The brewer also operates in China, South Korea and Australia.

Lepionka says because New Zealand is a small nation, capital restraints here meant that accepting a foreign takeover was “inevitable”. The sale will mean Charlie’s has access to Asahi Group’s distribution network and technical capabilities, while remaining a standalone business. David Beguely, managing director of Asahi’s local subsidiary Schweppes Australia Pty Ltd., says it is “absolutely thrilled" to enter into a venture with Charlie’s.

“Charlie’s is a very complementary business to us,” he says. “Our role will be to help and guide growth.”

Lepionka says: “That’s genuine intent. They’re seeing what our goal is, and that’s taking our business to the world." He told NZ Marketing this month that he loves New Zealand too much to consider relocating the business overseas. “The people here have a real pioneering attitude when it comes to ideas and innovation. And the Australians don’t. We can’t lose that mojo in our business.” Yesterday he said: “That’s what we should be selling about New Zealand.

“We’re freaks! And I think the world loves that. Being innovative is what’s going to lead this world.”


* Pick up the latest issue of NZ Marketing to read Ben Fahy's full interview with Stefan Lepionka