Global beer companies battle it out: SABMiller goes hostile with $10 bn Foster's bid

MELBOURNE/LONDON: Global brewer SABMiller took its $10 billion bid for Australia-focused Foster's Group direct to shareholders on Wednesday just days before the Australian brewer's annual results are set to show flagging profits.

The cash offer at $A4.90 a share was unchanged from SABMiller's first approach in June, which was rejected by the Foster's board.

It will be reduced by any second-half dividend Foster's pays, forecast at around 15 cents, or 3 percent of the offer price. But set against that, Australia's stock market has fallen by more than 4 percent in the intervening weeks.

SABMiller's renewed assault also comes after rival bidders failed to appear, and was flagged in an exclusive Reuters story last week.

But holders of Foster's stock were not convinced the London-based predator will now get things its own way.

"I don't think the offer on the table is fair value. Foster's is a prized asset with strong cash flow and at probably the low point of its earnings cycle. For an iconic business, that sort of an offer is undercooking it," said Paul Xiradis, Chief Executive at fund manager Ausbil Dexia.

Foster's third-largest shareholder, Perpetual Investments with 4.7 percent, sees the move as "welcome in that it'll get the parties engaged," according to Matthew Williams, its Australian equities manager.

Under Australian stock market rules, SABMiller now has two months to submit a formal bid.

Foster's shares closed up 0.6 percent at A$4.96 in Sydney on Wednesday ahead of the move by SABMiller, whose own shares were up 0.7 percent at 21.32 pounds in London, outperforming the FTSE 100 index which was down 0.7 percent at 1045 GMT.

Back in June, Foster's Chief Executive John Pollaers said the offer was so low it was not worth discussing, but he recently came under fire at a public forum for failing to engage with SABMiller. Foster's declined to comment further on Wednesday. Its full year results are due on Aug 23.

The cash deal values Foster's at A$9.5 billion ($10 billion). Taking debt into account the enterprise value of the bid is A$11.2 billion ($11.7 billion).

The Foster's business SABMiller is bidding for holds about half of Australia's beer market and little else, having retreated home from the global beer empire it once held and having split off its wine business earlier this year.

The Foster's brand belongs to Heineken in Europe, is licensed to SABMiller in the United States, and is either owned separately or brewed under licence in all main markets outside Australia.

A potential SABMiller-Foster's deal would join together the brewer of Miller Lite, Peroni and Grolsch with Melbourne-based Foster's, whose main brands there are Victoria Bitter, Pure Blonde and Cascade.

It would be theG biggest brewing deal since InBev paid $52 billion to buy Anheuser-Busch to form AB InBev in the world's biggest cash takeover in 2008.

"As there has been no willingness to engage in relation to SABMiller's proposal on the part of the Foster's board, SABMiller has decided to make an offer to Foster's shareholders directly," SABMiller said in a statement.

When SABMiller launched its bid for Foster's, analysts said the London-based brewer might have to pay up to A$5.20-A$5.40 to succeed, but now some believe A$4.90-5.10 will win the day, according to a Reuters poll.

BUYBACK DEFENCE? Some analysts says Foster's may look to launch a share buyback or pay a special dividend in order to thwart SABMiller, and some shareholders said this was a possibility.

Citi analysts say Foster's has the capacity to return A$1-A$1.5 billion in cash.

Analysts say there are unlikely to be any antitrust problems in a SABMiller-Foster's combination, nor are any rival bidders expected to surface.