How Alan Bond went bust in beer by Paul Barry
ALAN BOND is one of the few people in history who has gone bust owning a successful brewery. And he did it in style, setting a series of records as he did so.
At the end of the 1980s, his Bond Corporation chalked up the then largest loss in Australian corporate history, with a deficit of more than $1 billion. Soon afterwards, it disappeared into a $5 billion black hole and smashed the record for Australia's biggest corporate collapse.
Not long after that, Alan himself scored the world's second-biggest bankruptcy, with personal debts of $600 million, on which creditors were eventually forced to settle for 1/6th of one cent in the dollar. And finally, at the end of the 1990s, he romped away with the title of Australia's top fraudster, pleading guilty to depriving the shareholders of Bell Resources of no less than $1.2 billion.
Bond's meteoric rise to fame began with his America's Cup victory in 1983, which gave him entry to almost every bank and boardroom in the world. Until then, Bond Corporation had not even been one of the top 100 companies in Australia. But from that moment on, his ship sailed full speed ahead, burning billions of dollars of Other People's Money as it went. In the next six years Bond's businesses grew 20 fold, and his debts multiplied to match. He bought gold mines, airships, a telephone company and property by the truckload. He paid Kerry Packer $1 billion for the Channel 9 TV network and lashed out millions on satellite broadcasting in the UK. He bought paintings, diamonds, yachts, farms, stately homes and even an English village. Indeed, just about anything that caught his fancy.
And, strangely enough, it was Australia's beer drinkers who were expected to foot the bill. The cash from the breweries that his companies bought in the 1980s was supposed to pay the interest on the $12 billion of bank loans and junk bonds that his companies raised to finance these deals.
Bond borrowed heavily to buy Western Australia's Swan Brewery in 1981, and made a success of it. But he didn't hit the big time in beer until 1985, when he captured Castlemaine Tooheys for $1.2 billion, in the biggest corporate takeover Australia had ever seen. The nerve of it was amazing: Castlemaine was four times the size of Bond Corporation, which was paying three times the market price for its shares. And Bond was doing it all on borrowed money, with a $1 billion bank loan from the Hong Kong Shanghai Bank. But it was a great deal, all the same. It gave Bond Brewing almost half the Australian beer market, with a near monopoly in both Queensland and WA and an iron grip on the drinkers of NSW.
From this position of strength there was really nothing that could go wrong, provided Bond looked after his customers and exercised a little patience in his plan to conquer the world. As any beer drinker knows, people keep drinking in good times and bad. There is no easier way to make money than to own a brewery.
But patience was never Bond's strong suit. Nor was restraint. So instead of reducing his mountain of debt, he set off on a huge spending spree. And instead of wooing his customers, he did just about everything he could to turn them away. He also managed to alienate the very people he relied on to sell his beer.
In Queensland, almost the first thing to be done was the removal of the iconic XXXX sign on the company's Milton brewery which was replaced with one saying ‘Bond Brewing'. Adding insult to injury, the XXXX label was redesigned so that ‘Bond Brewing' and ‘WA' appeared on the cans. Meanwhile, the brewery's loyal hoteliers were squeezed, having their free credit period reduced from 30 days to 7. And doing it just before Christmas when they needed the money most. "It nearly sent a lot of people to the wall," according to Bernie Power, who ran a string of Brisbane hotels. "We had done business with that company for fifty-odd years, and they did it without so much as a phone call or a letter."
The people who sold Bond's beer were understandably furious. And Power himself was so angry he set up his own brewery in competition. The banks laughed at him at first, but he got the media on his side and within a year had carved out a 10% share of the Queensland beer market. He then set about attacking NSW, where Bond's actions were doing even more damage to his Tooheys brand.
In an effort to extract $30 million more profit out of the business, Bond Brewing was trying to throw 130 Tooheys leaseholders out of their pubs without paying any compensation. The lease agreements suggested it had the legal right to do this, but Tooheys had always assured its hoteliers that the clause meant nothing. It had also encouraged them to spend hundreds of thousands of dollars on buying the leases and improving their pubs, and had assured them they had security of tenure. Many of these leaseholders were now faced with losing their livelihood and their entire life savings. One tenant who had sunk a $400,000 payoff from the railways into his pub was told that his time was up and he had to leave. "You mean, you're telling me I'm wiped out?" he asked. "That is correct," came the reply, "you made a commercial decision and you take the consequences."
Reg and Joan Lynch, who owned the Pymble Hotel on Sydney's north shore, were typical of the people whom Bond Brewing was putting in the firing line. They had bought a run-down pub and spent a huge amount of money and time on renovations and building up the business. And although they weren't the first to be given notice to quit, the Lynches knew their number would soon come up.
In the weeks after the brewery made its move, Reg Lynch became more and more convinced they would lose everything, and more and more depressed. Then one evening he slipped out of the pub and didn't come home. The next day, the police asked whether he was the type who would take his own life. It hadn't even crossed their minds, his wife told them. He was a family man, it would be totally out of character. They found Reg later that day. He had checked into a local hotel, put a plastic bag over his head and drawn it tight, suffocating himself to death.
The lawyers agreed on a form of words for Joan to give the stream of reporters who soon came knocking on the door. She was not allowed to say that the battle over the pub had killed Reg Lynch, but it had been a "major contributory factor". The other Tooheys leaseholders, who had by now formed an action group and raised $2 million to battle for their leases in the courts, had no doubt that the pressure had driven him to suicide.
The courts didn't reach a decision on the Tooheys case until the end of 1987, 18 months after the first evictions were mooted, but it was worth the wait and worry. The brewery's right to terminate the leases was upheld, but it was ordered that the pub owners must be compensated at current market value. Joan Lynch and her children were there to hear the verdict and join in the tears.
Even then, Tooheys refused to give up the fight. Some of the ringleaders in the Tooheys Leaseholders Action Group then received notices to quit, on the basis that the Brewery wanted to manage their pubs. Several were offered only half what they reckoned their pubs were worth in compensation. And so began another long period of uncertainty and distress. But the leaseholders finally won the battle in 1989 when Bond's business empire ran out of cash and the notices were withdrawn.
As interest rates rose to 18 per cent, property prices dived and Bond's house of cards began to collapse, the breweries in Australia were about the only part of Bond Corporation still making money. But even they couldn't earn enough to keep the entire ship afloat, not least because they were in much worse shape than when he had acquired them.
When Bond Brewing was finally sold to Lion Nathan in September 1990 its share of the Australian beer market had dropped to 37%, from 45% five years earlier. In New South Wales, Tooheys had suffered an even worse fall in market share, from 60% to 40% in the short time that Bond had owned it.
In 1987, Bond had also bought himself a big brewery in the USA, an old Wisconsin firm started in the mid-1800s by Gottlieb Heilemann. This company lost market share too, and became so loaded up with debt that it had to file for bankruptcy protection in 1990. Eventually, it was sold to rival brewer Stroh for about a quarter of what Bond had paid for it.
A great dealmaker he may have been - when the market was rising - but Bond was never much cop at running the businesses he acquired. And surely no one can have gone bust running a brewery TWICE!
Beer, business and brewing in the 80s
by Matt Kirkegaard
REACHING the legal drinking age in the 80s, I was more concerned with the volume than the quality of beer available. There weren't too many decisions to be made in my salad days of beer drinking. None of this mid-strength, imported, low-carb, nonsense. Jug or stubby was about it.
I was also none too concerned about the business of making it. All that mattered was that it was there, and being a born and bred Queenslander it had to be XXXX. Castlemaine Perkins, Castlemaine Tooheys, it was all XXXX to me. That is until a day in 1985 when everything changed. A new sign adorned the building where the famous Mr XXXX used to be. It said "Bond Brewing" and the address on the cans beside the image of the iconic Milton Brewery said, ‘Western Australia'.
Times they were a-changing and they had changed quickly.
Fourth generation brewer Bill Cooper had become the Managing Director of the family company in 1977. Bill recalls that at the start of the 80s there were 10 members of the industry group, Australian Associated Brewers.
"There were 10 members, but only nine companies," Bill says. "The tenth member represented Queensland Breweries, the Bulimba Brewery, which was owned by Carlton."
The other brewers in the association were Carlton and United, Tooths, Tooheys, Castlemaine Perkins, Tasmanian Breweries - which was Boags and Cascade, Coopers, South Australian Brewing, Swan and Courage.
"Swan was the first to go," Bill recalls.
There had been much speculation in the late 70s about the possible purchase of many of the major breweries and Swan Brewing was not immune. During 1980 Robert Holmes a Court bought up two million shares - three per cent of the company - and by December 1980 Alan Bond's Residential Developments Pty Ltd also owned over 10 per cent of the company.
With concerns about takeovers rife, much talk in the industry was spent planning how to forestall outside takeovers. It seems the brewers figured that it was better to unite than fall to outsiders.
In the book Swan: History of a Brewery, author Suzanne Welborn recounts a meeting in Brisbane between Swan's General Manager Lloyd Zampatti and Chairman Alan Blanckensee and their counterparts at Castlemaine to discuss a possible merger in the lead up to the period. The talk came to nothing. Welborn's book also describes an alleged handshake deal that took place in a hotel carpark between Zampatti and Lloyd Hartigan from Toohey's to the effect that they would look at merging if either brewery was threatened. But in mid 1981, as Bond moved to take over the West Australian brewery, there was no one to prevent it. By then Tooheys was Castlemaine Tooheys as the potential saviours had made other arrangements and merged in March 1980.
Lion Nathan's Bill Taylor was brewing at Castlemaine in Brisbane at the time and recalls the merger taking place with little fanfare.
"The company secretary arrived at the brewery one morning and announced that we had just merged with Tooheys and the company was changing its name to Castlemaine Tooheys," Bill recalls.
There may have been little fanfare but Bill says that the mergers were an important part of the evolution of Australia's brewing business.
"It was a merger between two significant brewing companies in Queensland and New South Wales," Bill says.
"There was synergy there. Castlemaine was selling beer 2,000 kilometres north in Cairns but not 100 kilometres south in Tweed Heads."
Taylor was still there in 1985 when Bond, having captured both Swan and the America's Cup, set sail for Castlemaine Tooheys.
"Back then that was the biggest takeover in Australian corporate history," Bill says now. "It was more than a billion dollars, and there had never been a billion dollar deal in Australian business at that time."
"Bondy created a corporate identity called Bond Brewing, so the Castlemaine sign that was on the front of the brewery came down and a big silver logo went up that said ‘Bond Brewing' and the head office was St Georges Terrace, Perth went on the label."
At the time, the deal shook up the brewing world - or at least the world of beer drinkers. For Taylor it shows how ingrained our beers were in our psyche then.
"It's interesting, people wouldn't care about that sort of change if it was a pair of shoes, a camera or a washing machine or a refrigerator. If it was petrol no one would care," he muses.
"But for some reason beer really has this emotional connection with people, or at
least it did. I'm not sure if it does any more, but it did."
Another young brewer at XXXX at the time was Ian Chant who had joined the brewery in 1978. Ian recalls a heady time when not only the bigger brewers were going through times of change, he says the 80s also saw the rise of the microbrewer as well, and they were looking for people to do their brewing.
"I got invited to join a number of start-ups in the 80s but I guess I recognised that you can have a passion for brewing, but at the end of the day it's a unit cost business," he said.
"My gut told me that a lot of people were going to go out there and get small breweries, pub breweries, up and running and were not going to succeed." He declined the offers.
Still, he harboured some reservations about the new brewing monoliths that were forming, including his employer.
"At Castlemaine we had 80 per cent market share and Carlton and United Breweries had 16 or 17 per cent," Chant recalls
"I had the feeling at the time that a lot of people in the company thought Castlemaine had an unassailable position, but my personal view was this wasn't the case.
"I felt that there was a time for change and that time was not too far away."
For Castlemaine Tooheys in Queensland, change came in the form of Bernie Power.
As Power describes it, he had several hotels in Queensland from far north in the Cape right down to the Gold Coast and he sold XXXX. He is matter of fact in describing the situation faced by hoteliers at the time.
"You basically did what you were told," he says. "If you were a lessee of a hotel, you didn't sell the opposition beer, there's no question about that.
"In those days if you were with a tied house, that was all you sold. You only sold exactly what Castlemaine Perkins gave you."
Conditions got even tougher just before Christmas 1985 when Castlemaine changed the terms of credit it extended to hoteliers from 30 days to seven, with CUB following suit a week later.
"It almost sent a large number of hoteliers to the wall. It was absolutely devastating, as you can imagine, at Christmas when you had your big buy in and were relying on 30 days credit."
It was the last straw for Power who resolved to do something about it.
"I decided to look at building a small brewery," Power says modestly.
Learning that Philippines Brewer San Miguel had a small brewing plant in storage on Guam that they weren't going to go ahead with, he made inquiries of the company. It turned out that the plant had been badly stored and the equipment damaged and worthless. Still, his investigations showed him two things. There was a lot of equipment out there and, more importantly, there was a market.
"It became quite clear to me that there was a lot of discontent in the marketplace. Hoteliers and others were angry, frustrated and didn't like the company, or both companies in fact."
"It was quite clear to me as a hotelier that there would be an opportunity to build
Still his research also showed him how little he knew about establishing a brewery, so he set out to learn.
He contacted Andrew Crook, former head brewer at XXXX and a man Power describes as the doyen of Australian brewers. Crook put him in contact with a dream team of international brewers and three young employees at Castlemaine.
Suddenly Ian Chant, the man who had been refusing an increasing number of offers to start breweries because of concerns about their viability, got an offer he couldn't refuse.
"Most of these people had maybe a couple of million dollars at the absolute maximum, and they thought they could do it on a shoestring," he said.
"When this one with Bernie came up, suddenly we had a situation where you had a hotelier who had a number of distribution outlets, but more to the point he had a plan to secure funds."
The two others that Power approached, Malcolm Davies and Steve Guyt, shared Chant's view that Castlemaine Tooheys was vulnerable.
"When Bernie had a talk to us we shared the vision and we had the same feeling about what was going to happen in the industry.
"And we decided that we were going to play a part in it."
In one of the most successful brand launches in beer history, Powers Lager burst upon the market, quickly taking a 10 per cent share in its home market. Ironically, the seeds of its downfall were sown in this success. Despite a period of intense competition lasting several years, Power ended up partnering with CUB before selling the brewery in 1992.
"The facts are that we ran out of beer, literally on the first day, and never caught up," is how Power describes the situation.
"What we should have done was focussed on our state so we could supply it properly and manage it properly."
Power's assessment is backed up by another of the 80s' brewing mavericks who drew swords against the might of the large breweries, Chuck Hahn.
"Bernie had really good brewers, he chose a good brewery site there in Yatala and very quickly took a big market share in Queensland," Hahn says.
"If Bernie had been less ambitious he could have become the leading Queensland brewer, but he wanted to take on the nation."
Hahn had himself set up a brewery, going to market with his Hahn Premium Lager in March 1988, six months after Power. He too met with immediate success and a swag of awards. However, within months of opening, the 1988 budget came down and fundamentally changed the marketplace adding a 20 per cent sales tax onto the existing excise. Keating's "recession we had to have" followed soon after, the combination seeing off many of the small brewers.
By decade's end Bond was gone, with Swan and Castlemaine Tooheys bought out by Lion Nathan. The Hahn Brewery and SAB followed in the early 90s, while Powers went to join CUB, now The Foster's Group...but IXL, Elders, Elliot and Kunkel that's another 2,000 words.
This era of beer and brewing cannot truly be captured in such a short space. The histories of beers are also the histories of people, and they are compelling stories. But what is the legacy of the period?
For Bill Taylor, the consumer has won.
"I think from the consumer's point of view it's opened up the country, there's a wider variety of beers available to the consumer - all that occurred opened up the markets," he says.
"We used to sell beer in Cairns, but we wouldn't sell it past Tweed Heads. I don't know why. Was it the fear of the parochial consumer, did we think that New South Welshmen wouldn't drink a Fourex?
"All that's sort of broken down now and the turning point seemed to be the 80s, so the consumer I think has been the big winner."
Ian Chant sees the social changes that took place, but he also looks at the period with a pride common to all who worked on the Powers Project.
"Maybe I've got tickets on the Powers team, but in 1987 Castlemaine Perkins had over 82 per cent marketshare - they don't command anywhere near that marketshare any longer and I think that Powers was the vehicle that broke that dominance."