Brewer ready to go hostile in Foster’s takeover move

Its proposed price of £3.13 a share, which SABMiller will put direct to Foster’s shareholders, is at the same level as the approach rejected by the Melbourne-based firm’s board in June.

SABMiller is the world’s second-biggest brewer by volume and has global brands including Pilsner Urquell, Peroni Nastro Azzurro, and Miller Genuine Draft.

It is interested in targeting Australia’s profitable beer market, in which Foster’s is the leading brewer with seven of the top 10 beer brands, as well as a national distribution network and scale production.

SABMiller said it believed the proposal is attractive and should be put to Foster’s shareholders.

It added: “As there has been no willingness to engage in relation to SABMiller’s proposal on the part of the Foster’s Board, SABMiller has decided to make an offer to Foster’s shareholders directly.”

The offer from SABMiller is below the closing price for Foster’s shares of £3.16.

Foster’s has become the subject of takeover interest after it sold off its under-performing wine business into a separately listed company in May.

Analysts have said that other global brewers may be interested in Foster’s, which owns leading brands including VB, Carlton Draught and Corona.

SABMiller said its offer will be funded through existing resources and new debt committed by a number of financial institutions. The proposal is subject to minimum acceptances of 90 per cent of the group’s shares.

SABMiller made an informal approach to Foster’s on June 20, also with an offer of £3.13 a share.

The Foster’s board rejected the proposal immediately, stating that the offer was so low that it was not worth considering.

SABMiller has subsequently attempted to engage with Foster’s, but the Foster’s board has been unwilling to talk.

SABMiller said it would fund the deal through a combination of existing resources and committed new debt facilities.

Analyst Sam Hart, at Charles Stanley, said: “We consider Foster’s to be an attractive target for SABMiller, given the favourable fundamentals of the Australian beer market and significant potential to improve operational performance within the business.

“It is unlikely that Foster’s shareholders would accept an offer at A$4.90 (£3.13), but it could be the catalyst for the Foster’s board to engage with SABMiller and agree a recommended offer of up to A$5.40 (£3.44).

“Foster’s is not a ‘make of break’ deal for SABMiller and we do not think SABMiller would be afraid to walk away if an attractive price cannot be negotiated.

“SABMiller has a good acquisition track record, so we think risks are low that SABMiller will overpay.”

Analysts believe that beer will remain a structural growth industry in many emerging markets, given rising disposable incomes and growth in urban middle-class populations.

“SABMiller is well positioned to exploit this trend, given unrivalled exposure to emerging markets and a strong portfolio of both international and local beer brands,” said Mr Hart.

SABMiller’s hostile approach for Foster’s comes just days before the Australian beer group’s annual results are set to show flagging profits.

Australia’s stock market has fallen by more than four per cent since the first offer was made, making it arguably more attractive.

But analysts still expect the Foster’s board to rebuff its suitor for a second time after a meeting today.

SABMiller’s renewed assault comes after rival bidders failed to appear, and the targeted brewer is seen as having few other options.

Foster’s third-largest shareholder, Perpetual Investments with 4.7 per cent, sees the move as “welcome in that it’ll get the parties engaged”, according to Matthew Williams, its Australian equities manager.

A two-month deadline

Under Australian stock market rules, SABMiller now has two months to submit a formal bid.

In June, Foster’s chief executive John Pollaers said SABMiller’s offer was too low to be worth discussing, but he recently came under fire at a public forum for failing to engage with the international brewer.

Foster’s declined to comment further yesterday.

The Australian brewer’s full year results are due out on August 23.

The cash deal values Foster’s at £6.1bn.

Taking debt into account the enterprise value of the bid is £7.14bn.

The Foster’s business holds about half of Australia’s beer market and little else, having retreated home from the global beer empire it once held and having split off its wine business earlier this year.