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SABMiller Agrees To Acquire Australia’s Foster’s For $10.2 Billion

September 21, 2011

SABMiller, the world’s second-biggest brewer, has agreed to acquire Foster’s Group Ltd. with an A$5.10 ($5.22) per share cash offer that values the Australian brewer at roughly A$9.9 billion ($10.15b). Including debt, the deal’s total value is approximately A$11.5 billion ($11.8b). Foster’s management accepted SABMiller’s bid four months after rejecting its A$4.90 ($5.02) per share offer, which valued Foster’s at A$9.5 billion ($9.75b). The deal is subject to shareholder approval from both sides.

SABMiller’s initial offer came in mid-June, just weeks after Foster’s had split its beer and wine businesses into separate companies. The newly rechristened Treasury Wine Estates began trading publicly on the Australian Stock Exchange in May, while Foster’s continued trading on the exchange as a pure-play beer business.

In August, SABMiller launched a hostile takeover attempt, taking its offer directly to shareholders, and relations between the two companies became contentious in September when SABMiller asked Australia’s Takeovers Panel to examine whether Foster’s was in full compliance with accounting standards in its results presentation. (The panel rejected SABMiller’s complaint.) But SABMiller’s higher offer brought the two sides together. “This is a compelling proposal from SABMiller and represents the value inherent in this iconic Australian company and in its brands and people,” said Foster’s chairman David Crawford in a statement released earlier today.

Foster’s dominates the Australian beer market, with a volume share of around 50% and ownership of seven of the top 10 beer brands. Australia’s beer market offers relatively high margins, particularly compared to some emerging beer markets where SABMiller is a leading player—including China, where SABMiller co-owns China Resources Breweries, the country’s biggest brewer, and India, where SABMiller is the number-two brewer. However, with annual consumption of around 17 million hectoliters, the Australian beer market isn’t particularly large, ranking just outside the world’s top 20 beer markets, according to Impact Databank. And, perhaps more importantly, the market’s growth performance has been lackluster for some time. Consumption declined by 6% in 2010, although the dropoff was partly attributed to poor weather conditions.

While it retains the Foster’s brand trademark in Australia, Foster’s sold off the international rights to its flagship brand around much of the globe years ago. In the U.S. market, where Foster’s is handled by MillerCoors (in which SABMiller owns a majority stake), the brand has long been ailing. While it enjoyed consistent growth as one of the market’s best-selling imports throughout the 1990s, its annual sales have essentially been cut in half over the past decade. In 2010, Foster’s U.S. sales fell by 4.5% to 320,000 barrels (375,000 hectoliters). Formerly brewed in Canada for the U.S. market, Foster’s is now produced domestically.

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