The first relates to an agreement signed a decade ago with global food giant Cadbury, which gives TCCC a pre-emptive right to bid for Cadbury’s soft drink business in Australia. This pre-emptive right was triggered on Christmas Eve when Cadbury announced it had received a 550 million ($1.19 billion) takeover offer for the Schweppes business from Japanese brewing giant Asahi Breweries.

TCCC has until March to decide whether to buy Schweppes, or allow global competitor Asahi to consummate the deal and move into the Australian market.

Its decision will no doubt hinge on an even bigger decision it has to make on the future ownership of anchor bottler Coca-Cola Amatil (CCA).

TCCC has a 30 per cent shareholding in CCA, which is facing an $8 billion takeover offer from Lion Nathan.

Lion wants to execute the takeover of CCA via a scheme of arrangement that requires a 75 per cent approval. This makes TCCC’s agreement imperative if the deal is to succeed.

Whatever TCCC decides to do in relation to the future ownership of the two biggest soft drinks operators in Australia will also have an impact on the future ownership of Australia’s alcohol industry.

Put simply, if TCCC buys Schweppes and sells some of the brands into CCA, it would prompt Lion Nathan to withdraw its offer for CCA and increase the likelihood of Asahi bidding for the country’s biggest beer and wine company, Foster’s Group, which is finishing off a strategic review of its wine business.

But if TCCC decides to allow Asahi to buy Schweppes, and also knocks back Lion’s takeover offer for CCA, CCA might bid for Foster’s.

Foster’s underperforming wine business is acting like a poison pill, dissuading potential buyers of the beer business, which might fetch more than $11 billion in its own right. The board of Foster’s promised that by February it would release details of a strategic review, which could include demerging its wine business.

CCA is champing at the bit to get into the alcohol business, and would be very interested in Foster’s if the board opted to sell its wine business, write down the value of the wine business substantially, or even better, demerge the two businesses into separate entities.

CCA needs to get into alcohol because its dominance in the non-alcoholic beverages sector makes it hard to make any more acquisitions without running into regulatory problems from the Australian Competition & Consumer Commission.

It tried to buy the Berri fruit juice company in 2003 but faced ACCC opposition on the basis that the move would allow CCA to leverage its market power, and that would reduce consumer choice and cause harm competition significantly.

But CCA would need the green light from TCCC to bid for Foster’s, something that might not be as easy as it sounds, because any deal would reduce earnings per share.

CCA has started small in alcohol, with the formation of a joint venture with SABMiller called Pacific Beverages, along with an exclusive agreement to sell and distribute the premium spirit portfolio of global premium spirits distributor Maxxium, which boasts brands such as Jim Beam, Canadian Club, Remy Martin, Cointreau, and Absolut Vodka, and more recently started to build a $120 million brewery with a target of 30 million litres of beer.

SABMiller is more likely to look at Foster’s on its own, if it became availableCCA currently has around 12.5 million litres of beer, or 0.7 per cent of the market, including 2.5 million litres of Bluetongue, just under a million litres of Peroni, Miller and Pu Beer and a million litres of Grolsch (acquired by Miller this year).

But CCA’s alcohol strategy has raised speculation that there are bigger plans. The reason is simple: returns to date are minuscule, making it difficult to believe that SABMiller would really divert management time and resources for such a small return.

The upshot is SABMiller is more likely to look at Foster’s on its own if it became available.

Many argue that SABMiller’s alliance with CCA is more about understanding the Australian market and getting Foster’s to the negotiating table, than a possible vehicle for a Foster’s acquisition.

Financial records show that CCA’s share of the Pacific Beverage joint-venture profits were $800,000 in 2007 and about $300,000 for the first half of 2008.

Assuming it achieves its target of 30 million litres of beer, it would need to generate fat margins to make the business worthwhile.

Indeed, back of the envelope figures suggest that even if it made a $1.50 a litre gross margin, when marketing costs, operational costs and interest costs are taken into account, the returns become questionable. As a further aside, North America-based Molson Coors Brewing Company has bought a seat at any takeover table after announcing in November it had built up an economic interest of about 5 per cent of Foster’s, by entering into a cash-settled total return swap with Deutsche Bank.

Some speculate that Asahi is gearing up for a play for Foster’s, while others suggest that if Asahi gets Schweppes it will then bid on some of the assets of the struggling Independent Liquor.
Asahi has made it clear it wants to diversify, moving out of the Japanese beer market.
The next few months will be profound for the Australian soft drinks and alcohol industry, with TCCC playing a key role in its reshaping.

The decisions it makes may be based on deals it does in other countries.

For instance, Lion Nathan’s bid for CCA was made in conjunction with Lion’s major shareholder, Japanese beer company Kirin, which is understood to have had a series of discussions with TCCC regarding the bid, the business plan of the merged entity and ways to satisfy certain conditions that were outlined in a letter from TCCC to Kirin when the proposal was first presented to CCA.

In Japan, Kirin is the third-largest soft drink manufacturer with a 12 per cent market share and is a direct competitor of TCCC, which has 29 per cent of the market. Kirin also owns 10 per cent of TCCC’s leading Japanese bottler, Coca-Cola West Holdings Japan, and 100 per cent of Coca-Cola Bottling Company of Northern New England, which operates in the 6 US states.

Japan is a more important market for TCCC than Australia.

Kirin is TCCC’s closest ally of the major Japanese beverage players and, in return for giving its approval for Lion to acquire Coca-Cola Amatil, under an acceptable structure, TCCC may seek concessions or undertakings from Kirin in Japan.

With everything up for grabs, and the Australian dollar making Australian businesses relatively cheap for foreign players, anything is possible.

It isn’t beyond the realms of possibility that TCCC does a deal with Kirin, ends up with 9 per cent of CCA, keeps making money from CCA by selling it syrup and buys Schweppes in Australia as a bargaining chip with a few other players.

The Australian