Brewer Foster's rejects SABMiller's $10bn hostile bid

18th August 2011, Comments 0 comments

Australian beer giant Foster's Group on Thursday urged shareholders to reject British-based SABMiller's US$10-billion hostile takeover bid, saying it was not enough money.

SABMiller, the world's second biggest brewer which makes Grolsch and Miller Lite, decided to take its offer direct to shareholders on Wednesday after its initial approach for the same price was turned down in June.

It has proposed a conditional, off-market, cash takeover of all issued shares at Aus$4.90.

But management at Foster's, which owns Australia's largest brewer Carlton and United Breweries, remains unimpressed, saying it undervalues one of the country's best known brands.

This was reflected in the company's share price, which closed 10 cents above the SABMiller offer at Aus$5.00.

"The board of Foster's, together with its advisers, has carefully considered the proposed offer and intends to unanimously recommend shareholders reject the offer," the company said.

"The board of Foster's reiterates its belief that an offer price of Aus$4.90 per share significantly undervalues the company in the context of a change of control.

"Foster's shareholders are advised to take no action and ignore all documents and communications from SABMiller in relation to its proposed offer," it added.

The offer is the largest takeover bid in the sector since Dutch brewer Heineken swallowed Mexican firm FEMSA last year for 5.3 billion euros.

The prospect of a play for Foster's has been anticipated since a recent demerger of its beer and wines businesses, and amid consolidation in the Australian beverage industry.

Foster's has split its beer division, which has been battling intense competition affecting its flagship brands VB, Crown and Carlton Draught, from its underperforming wine assets, which have been hit by a grape glut.

The company added that the offer was also diminished by conditions attached, and would be reduced by the value of any dividends it might pay during the offer period.

"The high level of conditionality further detracts from the proposed offer," Foster's said.

The takeover also requires approval from Australia's Foreign Investment Review Board and the competition watchdog, the Australian Competition and Consumer Commission.

Global investment bank Nomura believes SABMiller will need to increase its price, adding that the current proposal was likely to be the first in a game of "bluff poker".

"Pitched below the prevailing share price, we believe the bid will need to be increased to at least Aus$5.15 to be considered attractive and potentially Aus$5.60 to garner board support," it said in a note.

After Foster's rejected SABMiller's June bid, there was speculation that a counterbidder, such as Asahi Breweries Ltd, could enter the fray, but so far no other suitor has stepped up.

SABMiller's pursuit of the Australian company is in line with its strategy of extending its global reach. Founded in South Africa in 1895, it operates in 75 countries while it is also a major bottler of Coca-Cola.

The maker of Castle lager has noted that Australia has a strong, wealthy and growing economy that is well positioned to benefit from continued economic growth in Asia and has a profitable beer market.

© 2011 AFP

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