SABMiller PLC (SBMRY) said Tuesday it will continue to pursue a
takeover of Foster's Group Ltd. (FGL.AU) after the Australian beer
maker rejected a 9.51 billion Australian dollar (US$9.98 billion)
offer from the global brewing giant.
SABMiller's bid for Foster's is the first big deal for the
brewing industry since Heineken (HEIA.AE) bought Mexican brewer
FEMSA early last year and follows a trend of global consolidation
in the beer business.
SABMiller--the second-biggest brewer by volume after
Anheuser-Busch InBev NV (ABI.BT)--said it expects Australia's
economy to continue to benefit from booming growth in Asia and
Foster's is an attractive asset with seven of the country's top 10
beer brands.
The A$4.90-a-share bid sent Foster's shares up 13.5% to A$5.14
on a major spike in volume, indicating the market is optimistic
that a higher offer will emerge.
"SABMiller can conclude a transaction quickly and will continue
to seek engagement with the board of Foster's to put an agreed
proposal to Foster's shareholders," said SABMiller Chief Executive
Graham Mackay in a statement.
Mackay later said the brewer is "anxious" to talk with Foster's
management and dismissed suggestions the bid could turn hostile.
"We expect to engage with [the board]. This is not a hostile offer
to shareholders," he said in an investor call.
Melbourne-based Foster's said the bid--an 8.2% premium to
Monday's closing share price--"significantly undervalues the
company", and it doesn't intend to take any further action in
relation to the offer.
At 1034 GMT, SABMiller shares were down 68 pence, or 3.1%, at
2114 pence, the biggest faller on the FTSE 100 blue chip index.
Analysts said that while the company's big play for Foster's wasn't
a surprise, investors previously have expressed concern that
SABMiller shouldn't overpay for assets in a mature market that
could dilute its growth prospects.
The attempt by the London-based group to buy one of Australia's
most famous brands --once marketed with the slogan "Foster's,
Australian for beer"--could also intensify debate over the rising
number of foreign takeover bids in Australia. The Singapore Stock
Exchange Ltd.'s (S68.SG) US$8.4 billion bid to buy Australia's main
stock-market operator ASX Ltd. (ASX.AU) was blocked by Australian
Treasurer Wayne Swan in April on the grounds that Australia would
lose sovereignty over its clearing systems and the deal would
compromise Sydney's goal to become a regional financial hub.
A Treasury spokesman wouldn't comment on the SABMiller bid for
Foster's. He said the Foreign Investment Review Board reviews deals
based on the country's national interest.
Australian lawmaker Bob Katter, one of four independent
lawmakers whose votes are crucial to passing laws for Australia's
minority government, said Tuesday that he opposed the bid and
criticized the acquisition of Australian companies by foreign
firms.
"We need to protect and defend the farm from foreign vandals,"
he told Dow Jones Newswires. Katter wants a "proper" oversight
tribunal created that ensures strategically important local
industries aren't taken over by foreign buyers.
Still, SABMiller said it has a "proven track record" of
improving the financial and operational performance of the
businesses it acquires.
SABMiller's bid follows the recent demerger of Foster's wine
business into a separate listed company Treasury Wine Estates
(TWE.AU). The wine business has struggled in recent years and was
viewed as a hurdle to any takeover approach.
Foster's beer business has long been considered a potential
takeover target. Sales of beer in Australia have come under
pressure in recent years as specialist boutique and
low-carbohydrate beers have grown in popularity. In Foster's most
recent financial results, the Carlton and United Breweries beer
volumes for Australia declined 5.8%. Management said its beer
division was hurt by a "significant decline" in beer market volume
in Australia.
For SABMiller, maker of Grolsch, Peroni Nastro Azzuro and Miller
Lite, the move marks a change in strategy, having pegged its growth
to emerging markets where rising incomes and a thirst for a Western
lifestyle are fuelling demand. Emerging markets contribute more
than 80% of SABMiller's profit, compared with 50% for its
rivals.
At the end of May, SABMiller said fiscal-year net profit rose on
volume growth in Asia and Africa, cost-cutting and some price
increases, but was also cautious over the outlook for inflation and
the pace of recovery in Europe and North America.
A deal at the current price would be the fifth largest takeover
in the brewing industry's history, according to Dealogic data.
The Australian beverages market has been consolidating in recent
years. Kirin Holdings Co. (KNBWY) acquired Foster rival Lion Nathan
Ltd. for about A$3.3 billion in 2009.
Analysts said SABMiller's bid for Foster's falls short of what
Kirin paid for Lion Nathan, on a price-to-forward earnings
multiple.
If the multiple paid by Kirin for Lion Nathan were applied to
Foster's, that would equate to a A$5.40- to A$5.50-a-share offer,
Citigroup analyst Andy Bowley said in a note.
"We expect SABMiller to return with a higher bid though question
whether it can meet our view of the board's expectations given
limited synergies, low post-deal returns, and added risk given
current Australian dollar strength," Bowley said.
Some analysts said rival bidders are likely to emerge.
But Heineken NV (HEIA.AE) said it is primarily interested in
expansion in emerging markets.
"We aim to balance our exposure between emerging and mature
markets and if we were to do a large acquisition in a mature
market, this would again increase our exposure to mature markets
which we aimed to reduce in past years," a spokesman said. The
group currently generates 43% of its operational profit from mature
markets, down from 63% five years ago.
Carlsberg A/S (CARL-A.KO) Chief Executive Joergen Buhl Rasmussen
Monday told Dow Jones Newswires that it is looking at a long list
of potential takeover candidates, but dismissed a potential bid for
Foster's. "One can look at Australia and ask: is it a growth
market? Is it part of Asia? and conclude from that," he said,
adding "It's not a top priority for Carlsberg."
AB InBev declined to comment on whether it would make a rival
bid for Foster's.
Japanese brewer Asahi Breweries Ltd. (2502.TO) has also been
viewed as a potential buyer of Foster's beer business, in part
because of its existing tie-up with Foster's to market Asahi's
flagship beer in Australia.
A spokesman for Asahi Breweries wouldn't comment on whether the
company is considering bidding for Foster's. The company's
president, Naoki Izumiya, has been advocating for overseas
acquisitions as a way to grow sales.
SABMiller's joint venture partner in Australia, Coca-Cola Amatil
(CCL.AU), said earlier Tuesday the pair were amending the terms of
their JV to allow SABMiller to buy shares in Foster's. The initial
arrangement surrounding the Pacific Beverages JV limited
SABMiller's ability to buy shares in Foster's in its own right.
Mackay said he doesn't expect antitrust hurdles to arise from
the change in the terms of the joint venture. "We do not anticipate
difficulties in that regard," he said.
Foster's is being advised by Goldman Sachs (GS), Gresham and
Allens Arthur Robinson.
SABMiller is being advised by Moelis, JP Morgan (JPM) and
RBS.
-By Cynthia Koons and Gavin Lower, Dow Jones Newswires;
61-3-9292-2095; gavin.lower@dowjones.com
(David Rogers in Sydney, Hiroyuki Kachi in Tokyo, Simon Zekaria
in London, Flemming Emil Hansen in Copenhagen and Anna Marij van
der Meulen in Amsterdam contributed to this article.)
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