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The board of Foster’s Group yesterday rejected an A$11.2 billion ($11.9 billion) takeover offer tabled by SABMiller on Monday.
The offer translates to a price of A$4.90 a share and represents an Ebitda multiple of 12.5 times forecast 2011 earnings. Specialists said that the multiple was the same as Japanese giant Kirin Holdings paid in 2009 to buy Australia’s second-largest brewer Lion Nathan, which should help investors to view the deal favourably. The price is a premium of 14.5% to Foster’s trading price of A$4.28 on June 2, the day before the most recent round of speculation of a bid for the company, and a premium of 18.4% to the adjusted closing price of Foster’s shares on May 25, the day before Foster’s announced it was evaluating a demerger.
SABMiller is one of the world’s biggest brewers, with a portfolio that includes global brands such as Pilsner Urquell, Peroni Nastro Azzurro, Miller Genuine Draft and Grolsch, as well as local brands such as Aguila, Castle, Miller Lite, Snow and Tyskie. SABMiller is also one of the world’s largest bottlers of Coca-Cola products. It is listed on the London and Johannesburg stock exchanges.
Foster’s is the leader in the Australian beer market, with revenues of A$2.4 billion for the last financial year. Its brands include VB, Carlton Draught, Corona, Crown Lager, Pure Blonde, Carlton Mid and Carlton Dry. Foster’s is also the largest cider producer in Australia. It is listed on the Australian Securities Exchange. A takeover of Foster’s has been widely rumoured since the Australian company spun out its wine business into a separate company earlier this year.
“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,” said SABMiller in a written statement. The statement added that the demographic in Australia is well positioned to grow and Foster’s is the leading brewer in a profitable beer market, with control of seven of the top 10 beer brands.
SABMiller sent its proposal to the board of Foster’s on Monday. The proposal is subject to conditions including due diligence, agreeing the terms and conditions of a scheme implementation agreement and Foster’s board support.
However, the Foster’s board did not buy into the SABMIller offer and yesterday told shareholders it “significantly undervalued” the company. Specialists suggest that a competitive bid is not likely to be forthcoming as the 12.5-times valuation is richer than what financial sponsors would like to pay and few strategic investors could come to the table right now.
SABMiller is working with J.P. Morgan, Moelis & Company, Royal Bank of Scotland and Morgan Stanley as financial advisers, and Allen & Overy and Hogan Lovells International as legal advisers. Foster’s is advised by Goldman Sachs and Gresham, with legal advice from Allens Arthur Robinson.
Large shareholders in Foster’s include Capital Research with a 7.15% stake, BlackRock with a 6.1% stake and Perpetual with a 5.09% stake. Specialists suggest that shareholders of Foster’s could well be ready to play ball with SABMiller even if Foster’s board is not. And, if the deal does go through, it will be one more step towards the inevitable consolidation of the beer sector as well as one of the largest M&A deals in Australia in the consumer sector.
