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Foster’s Rejects 11.9b Offer, But SABMiller Will Pursue

June 21, 2011

SABMiller is first into the water with a $11.9 billion (including debt) offer for Foster’s, but it may not be alone in the chase for the top Australian brewer for long. Foster’s quickly deemed SABMiller’s bid—which values Foster’s at 12.5 times EBIDTA—as too low, saying, its board “believes the proposal significantly undervalues the company in the context of a change of control.” SABMiller’s proposed EBIDTA multiple comes in lower than the 13.8% Kirin paid in 2009 to gain full control of Foster’s top competitor down under, Lion Nathan.

Graham Mackay, CEO at SABMiller, the world’s second-largest brewer, countered that “the proposal price is attractive and offers good value to Foster’s shareholders,” adding, “SABMiller can conclude a transaction quickly and will continue to seek engagement with the board of Foster’s.” SABMiller has already arranged for a buyout of its current Australian partner, Coca-Cola Amatil, with which it operates Pacific Beverages joint venture, in the event it acquires Foster’s (it said the price for that transaction would be around $323m).

While some analysts remain skeptical of SABMiller’s ability to acquire Foster’s without overpaying—given Australia’s sluggish beer market—Mackay said in a conference call today the proposed deal would add to his company’s profits in the first year. “For a number of reasons Foster’s has lost market share (currently around 50%) and has been underperforming for some years and continues to do so,” he said, singling out Foster’s premium Pure Blonde brand as one that hasn’t received enough attention of late. “We believe this creates an opportunity for us to apply our operational and commercial opportunities to enhance current performance and for Foster’s to benefit from SABMiller’s global scale.”

Indeed, the only brewer with a global scale that can match SABMiller’s is Anheuser-Busch InBev (ABI). While ABI itself hasn’t yet publicly registered any interest in Foster’s—even as its 50% holding Grupo Modelo has reportedly mulled a joint bid with Molson Coors—if anyone has the financial firepower to corral Foster’s, it’s ABI. Moreover, because Australia’s beer market faces uncertain growth prospects, any eventual acquirer of its largest player will need to focus sharply on reducing costs and enhancing profitability—two areas where ABI is known to excel.

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