Foster's rejects $9.5b bid from SABMiller

Update Foster's Group shares soared as much as 13 per cent after the brewer rejected a $9.5 billion takeover offer from global brewing giant SABMiller as too low, offering only a slim premium for Australia's largest brewer.

• Bid offers an 8.2% premium to latest share price
• Foster's board tells investors to stay put
• Actions by Coca-Cola Amatil helped clear way for bid
• SABMiller says it will seek talks with board to secure offer

The rejection, though, is unlikely to quell SABMiller's interest. SABMiller chief executive Graham Mackay will tonight address investors and analysts in London to discuss the ambitious takeover offer.
“It’s game on,” Paul Xiradis, who manages about $12 billion, including Foster’s stock, as chief executive officer of Ausbil Dexia told Bloomberg. “There’s potential other parties may be interested.”

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Later today in Sydney, local beverage giant Coca-Cola Amatil will hold its own media conference as it positions itself for any assets that may be on the table from a Foster's takeover.
Coca-Cola Amatil is SABMiller’s local partner, operating a beverages joint venture that makes a popular range of beers such as Peroni and Blue Tongue, and the soft-drink maker is in a prime position to carve up Foster’s assets if a takeover is successful.
It comes as beer sales in Australia sag to the lowest levels in decades and customers move away from traditional beers and seek out new labels and smaller craft beers or ciders.
Foster's shares jumped 13 per cent after coming out of a trading halt this morning. The shares opened at $5.10 and last traded up 12.8 per cent at $5.11, above SABMiller's offer, and valuing the company at just under $10 billion. Prior to today, the company's shares have lost about 1 per cent of their value in 2011, outperforming the overall market's 6.2 per cent slide.
Small premium
Foster's said in a statement it had received a $4.90 per share offer from SABMiller - a premium of about 8.2 per cent to the company's closing price yesterday. 
"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.
In a statement of its own from Sydney, SABMiller said it would continue to seek engagement with the board of Foster's Group in a bid to secure an agreed takeover offer. SABMiller said it would finance a bid from existing resources and new debt.
Foster's has been slated as a possible takeover target for years in part because of the failure of its wine investments, which dragged down the overall value of the company. Those wine assets were spun off last month into a separate listed company, Treasury Wine Estates, making Foster's profitable beer assets more attractive for potential bidders.
The local beer icon is the latest high-profile business facing the threat of takeover by a foreign rival. Over the years, Holden, Vegemite, Arnott's, Victa lawnmowers, Speedo, Soothers are among the brands that have been swallowed up by overseas companies.
Today's rejection by Foster's of the SABMiller bid comes five months after BusinessDay's Adele Ferguson outlined the prospects of such a move. SABMiller, headquartered in London, resulted from the purchase by South Africa's SAB of Miller of the US in 2002.
Goldman Sachs is among advisers to Foster's, while JP Morgan is among the firms advising SABMiller.
Room for higher price

Foster's is seen as an attractive asset for its high margins and 50 per cent market share in Australia, although beer volumes have sagged in recent months with a cool summer and weak consumer spending.
UBS analysts say Foster's margins for beer are about 37 per cent, nearly double global peers.
 “I’d guess that there’s room to go higher if you compare them to some recent deals,” said Will Seddon, who helps oversee more than $350 million at White Funds Management in Sydney.
Foster’s “will just stick to the line that it undervalues the company. There have been a whole lot of transactions in that space in recent years, many of which were done at pretty high multiples,” he said.

Japan’s Kirin paid a 44 per cent premium for the 54 per cent of Lion Nathan it didn’t already own in 2009 in a deal that gave it full ownership of Australia’s second-largest brewer.
Coca-Cola Amatil move
Clearing the way for SABMiller to bid, Australian soft drink bottler Coca-Cola Amatil said earlier it has amended its joint venture terms with SAB to enable the brewer to bid for Foster's.
CCA said in a statement yesterday the existing arrangements would limit SABMiller’s ability to acquire Foster’s shares in its own right.
‘‘SABMiller does not wish to make a joint bid with CCA unless it results in SABMiller having financial management and operation control of FGL,’’ CCA said in a statement today.
‘‘CCA does not intend to make offers to acquire shares in FGL in its own right or as a passive minority shareholder.’’
The two companies are 50-50 joint-venture partners in Pacific Beverages, which manufactures the Bluetongue brands and distributes products such as Peroni Nastro Azzurro, Grolsch and Pilsner in Australia and New Zealand.
CCA said, should SABMiller make an offer for Foster’s within five years and acquire at least 50.01 per cent of the brewer, or declares its offer unconditional, SABMiller would buy out CCA’s half stake in Pacific Beverages for between $305 million and $380 million.

There would also be possible additional payments, CCA said, as well as non-compete provisions restraining both companies from going head-to-head in certain product lines, for 24 months.

CCA said it would also have the right to acquire some Foster’s businesses.

‘‘These amendments are designed to deal with the situation where SABMiller wishes to acquire FGL and we don't,’’ CCA group managing director Terry Davis said in the statement, dated June 20, 2011.

‘‘If they do we will receive an excellent price for our half share of the Pacific Beverages joint venture and the potential opportunity to supplement our alcoholic beverage strategy by the acquisition of certain of the assets of FGL.

‘‘We believe that if CCA’s shares in Pacific Beverages are sold under the new arrangements, the purchase price itself will deliver a two to three per cent lift in total earnings per share.’’

CCA said the Pacific Beverages business was listed in its accounts with a value of $95 million.
The two companies have, by mutual consent, also locked in a 10-year deal for the manufacture, sale and distribution of Beam spirits in Australia that now sits outside the Pacific Beverages joint-venture.
Belgium-based Anheuser-Busch InBev NV is the world’s biggest brewer.