February 27, 2021

DealBook: SABMiller Goes Hostile in Pursuit of Foster’s

FostersTim Wimborne/Reuters Foster’s, the biggest Australian brewer, said SABMiller’s offer “significantly” undervalued the company.

7:48 a.m. | Updated LONDON — SABMiller, one of the world’s largest brewers, said on Wednesday that it would take its $10 billion bid for rival Foster’s Group directly to shareholders, two months after the board of the Australian beer maker rebuffed an initial offer.

The hostile play comes just days before Foster’s is set to report annual results, which are expected to be weaker than those of the previous year.

SABMiller, whose array of brands includes Peroni and Castle, has remained steadfast in pursuing a deal, despite the unwillingness Foster’s to hold discussions. In June, the Foster’s board rejected a bid for 4.90 Australian dollars ($5.16) a share in cash, calling it too low. The offer, which remains unchanged, would decrease with any dividend that Foster’s pays out in the future, SABMiller said.

Julian Chillingworth, chief investment officer at Rathbone Brothers, said the takeover bid would probably succeed. For one, no rival bidders have emerged since SABMiller’s initial proposal.

Foster’s has lost some of its bargaining power since then, too. In June, some analysts suggested that SABMiller, based in London, would have to increase its bid to as much as 5.40 dollars. But Foster’s share price has fallen along with global markets, briefly dipping below SABMiller’s offering price before righting itself in recent days. Shares in Foster’s closed on at 4.96 dollars on Wednesday.

“As long as they don’t overpay, it’s a sensible move,” said Mr. Chillingworth, whose firm owns shares of SABMiller. “It gives them the option to use Australia as a gateway to China.”

In the last decade, SABMiller has been an aggressive deal maker.

In 2002, South African Breweries acquired Miller from Philip Morris for $5.6 billion to create SABMiller. A few years later, SABMiller bought a majority stake in Bavaria, South America’s biggest beer company.

It has since filled out its portfolio with acquisitions and investment across the globe, matching businesses in fast-growing regions like China and Latin America with mature, cash-flow-rich areas like Europe and the United States.

It is a similar story across the industry. Amid rising commodity prices and other profit pressures, the largest players — Anheuser-Busch InBev, SABMiller, Heineken and Carlsberg — have been rapidly consolidating. The top four players now account for 50 percent of the global beer market, up from 20 percent in the late 1990s.

With an acquisition of Foster’s, SABMiller would gain control of a sizable portion of Australia’s beer industry. The Foster’s lineup includes 7 of the top 10 brands, including the No. 1 beer, Victoria Bitter. While Foster’s is losing market share in Australia, the brewer’s margins remain high relative to the global industry.

SABMiller has a history with Foster’s. In 2006, it purchased the Foster’s business in India. Miller Brewing, the company’s American subsidiary, also has an agreement to brew certain brands in the United States, including Foster’s Lager and Special Bitter.

Now, SABMiller will need to convince shareholders that a broader deal makes sense.

Foster’s owners include a combination of domestic investors like Commonwealth Bank of Australia and National Bank of Australia as well as global money managers including Deutsche Bank. There is some overlap between the shareholder bases of the two companies. For example, BlackRock has a significant stake in both brewers, according to Bloomberg data.

Regulators, too, may need some reassurances, Mr. Chillingworth of Rathbone Brothers said, especially if they consider the Foster’s brand a point of Australian pride.

The national government has previously intervened in takeovers by foreign companies. In April, Australian authorities rejected a bid by the Singapore Exchange for the stock exchange operator ASX, saying the deal was not in the nation’s interest.

A spokesman for Foster’s was not immediately available for comment.

SABMiller is being advised by JPMorgan Chase, Moelis Company, the Royal Bank of Scotland and Morgan Stanley. Legal advice is being provided by Allen Overy and Hogan Lovells International. To finance the deal, SABMiller said it would rely on existing resources and new debt committed by several financial institutions.

Article source: http://dealbook.nytimes.com/2011/08/17/sabmiller-goes-hostile-in-pursuit-of-fosters/?partner=rss&emc=rss

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