Has SABMiller made a dingo's breakfast of £6.2bn Foster's bid?

The world's second-largest brewer may have messed up on its first attempt - but chances are, it'll go back for a second try.

by Emma Haslett
Last Updated: 17 Aug 2011
It’s been a heavy morning for UK-based brewer SABMiller, which saw its shares tumble by almost 3% after it failed to impress the management of Australia’s largest brewer, Foster’s, with a £6.2bn takeover bid. Foster’s, by contrast, saw share prices jump by 13% after it turned down the bid of A$4.90 a share, saying it felt SAB’s proposal ‘significantly undervalues the company’. This is despite the fact that the offer is a good 8.2% higher than Foster’s closing share price yesterday. Strewth…

So what makes the Aussies think Foster’s is such a bonza proposition? Well, to begin with, the company owns seven of Australia’s top 10 beer brands, including Victoria Bitter and Carlton, which means any business wishing to make inroads into the Australian market has a ready-made vessel. And by all accounts, SAB is keen: apparently, it had to alter the terms of a joint venture it has with Coca-Cola Arnatil (under which it already has a small presence in the country) just to enable it to bid for Foster’s.

Apart from its sheer size, Foster’s has become particularly attractive since it de-merged from its unprofitable wine business, Treasury Wine Estates, in May. That means Foster’s is now entirely focused on beer, where it makes margins of 37% - roughly twice the industry norm. Which is the sort of figure that’s sure whet the whistle of any competitor on the prowl for new acquisitions.

That demerger, as UBS pointed out recently, means Foster’s now represents a ‘rare, sizeable opportunity… when other significant global brewing M&A opportunities are coming to an end’. Cue a long list of potential bidders, including everyone from Japanese brand Asahi to Heineken to a rumoured joint bid from Mexico’s Grupo Modelo (owners of Corona) and US-Canadian brewers Molson Coors. Which begs the question, why are all these brewers so keen on Australia? You’d think the Aussies had a reputation as beer monsters, or something…

But despite its failed offer, SAB is still at the top of the list. Indeed, as all potential investors know, if at first, you don’t succeed, regroup and make a second offer. So despite the fact that CEO Graham Mackay insisted today that the SAB board believes ‘the proposal price… offers good value for Foster’s shareholders’, its offer is likely to rise. The barman hasn’t called last orders quite yet…

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