Fosters rejects SABMiller takeover move

Melbourne - Foster's Group on Tuesday rejected a A$9.5bn ($10.1bn) cash takeover offer from SABMiller as too low after the global brewing giant offered only a slim premium for Australia's largest brewer.

Foster's, one of the last prizes in a consolidating global beer market, has high margins and a 50% market share in Australia, where it brews the Victoria Bitter and Pure Blonde brands.

World brewers, juggling rising raw materials prices and slowing growth in mature markets, are seeking growth elsewhere and aiming to pass on rising input costs to consumers.

News of the bid sent Foster's shares surging 12.8% in opening trade to A$5.11, its highest level in almost 9 months and well above SABMiller's offer price of A$4.90 per share.

"This is probably round one. (SAB) is a big global player and this is a very good margin business versus its peers," said Jason Beddow, chief executive at ARGO Investments, which holds Foster's shares.

Foster's has been the subject of takeover talk since it announced plans last year to spin off its struggling wine operations, which bore nearly A$3bn in write downs in recent years.

The approach by SABMiller, which is understood to have come by letter, according to a source familiar with the situation, was swiftly rejected.

"The board of Foster's believes that the proposal significantly undervalues the company in the context of a change of control and, as such, it does not intend to take any further action in relation to it," the company said in a statement.

The offer was at a premium of 8.2% to Monday's close.

Odds-on favourite

SABMiller, which makes Peroni, Grolsch and Miller Lite beers, has long been seen as the favourite to bid for Foster's, according to analysts, as its rivals such as Heineken struggle with debt piles or lack of adequate funding.

Japan's Asahi Breweries has shown interest in the past, according to sources, but said in February it was not planning to buy any part of Foster's. China's Tsingtao Brewery Co said in May it was not involved in bidding.

Speculation about a joint bid by Grupo Modelo SAB de CV and Molson Coors Brewing Co earlier this month, meanwhile faded due to complexities in such a deal.

For its part, SABMiller confirmed in a statement from Sydney on Tuesday that it had made a non-binding, conditional offer which it could finance from existing cash and new debt.

"The proposal to acquire Foster's is in line with SABMiller's strategy to create an attractive global spread of businesses, with a focus on developing strong and successful brand portfolios," the London-based firm said.

Foster's beer operations and the spun-off wine business, Treasury Wine Estates, were listed separately on the stock exchange last month.

Investors said the split made the businesses more attractive to potential suitors by separating the struggling wine business, which had been seen as a poison pill.

Foster's Chief Executive John Pollaers, a former navy weapons engineer, has said he is confident about the company's growth prospects and was keen to grow the demerged company's market share, which has fallen to around 50 percent.

High margins

Foster's is seen as an attractive asset for its high margins and dominant position in Australia, although beer volumes have sagged recently with a poor summer and consumer downturn.

UBS analysts say Foster's margins for beer are about 37%, nearly double global peers.

SABMiller said its proposal represented a multiple of 12.5 times 2011 forecast EV/EBITDA and would be attractive to shareholders.

Foster's shares most recently ran higher on talk of the Modelo bid, and SABMiller argued its offer was a premium of 14.5% to Foster's shares before the latest round of takeover talk.

Foster's shares, which have spiked with regularity over the past year each time takeover rumours surfaced, traded as high as A$5.25 last September, on a post-split basis.

"It looks like a very big price," said a Melbourne-based fund manager who does not own Foster's shares.

"It's 12 times EV to EBITDA. That's in the range of some of the comparable multiples recently paid for these types of transactions. Business conditions have been very difficult."

Foster's has forecast that beer volumes will decline between 3% and 4% in the current half to June 30, though analysts say the decline could be a bit larger.

Foster's competes in a duopoly with Kirin-owned Lion Nathan, which has around 40% share, with the remainder of the market made up by small craft beers.

Clearing the way for SABMiller to bid, Australian soft drink bottler Coca-Cola Amatil said earlier it had amended its joint venture terms with SAB to enable the brewer to bid for Foster's.

C-C Amatil said the sides amended their Pacific Beverage joint venture, so that SABMiller would buy out Amatil's share for up to A$380m.

SABMiller is being advised by JP Morgan , Moelis & Co, RBS and Morgan Stanley . Foster's is being advised by Goldman Sachs and Gresham. 

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