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There’s no upside for SABMiller in going down under

The big brewer has been tactically astute in its manoeuvring against Foster’s. But does the deal need to be done at all?

As a tactical manoeuvre, you can’t fault SABMiller’s decision to go hostile with its £6.2bn offer for Foster’s. The Aussies have had two months to tickle up an auction and haven’t even produced a rumour of a counter-bidder. Stock markets everywhere have slipped back, increasing the supposed attraction of SAB’s cash. And Australia is not in patriotic uproar; Lion Nathan, the other big brewer, is already in Japanese hands and general opinion holds that iron ore and coal, not beer, are the true national treasures.

So, yes, the hostile approach might concentrate minds in the Foster’s boardroom and eventually produce a negotiated agreement on price, which is probably still SAB’s preference.

Good tactics, then, but is this a battle worth fighting? SAB, we thought, was an exciting long-term bet that Africans, south Americans and eastern Europeans would guzzle more beer over the next couple of decades. Why dilute the mix with a round of Australian lager? Even the locals there are turning to wine, and have been doing so for the past decade.

SAB protests that its emerging-market credentials will be intact. OK, but it is still proposing to pay 18% of its market capitalisation for Foster’s; this is not an incidental deal. SAB shareholders won’t get a vote but they will still have to be satisfied that the arithmetic stacks up. So far, all they have been told is that returns on capital will exceed SAB’s cost of capital sometime between years four and six after a takeover, which doesn’t sound like a must-do deal. Nor has there been much detail on how this would be achieved: Foster’s profit margins, at 38%, look high already.

Chief executive Graham Mackay will have to do better when, and if, he pushes the button on a bid. Clever tactics are one thing; persuading shareholders that a detour via Australia is a worthwhile adventure is another.

Russian beer goes flat

Still, at least SABMiller has avoided betting the farm on Russia. It has only 7% of the Russian market, whereas Carlsberg has 38%. The Danish brewer saw its shares fall 17% as it confessed that its judgment was impaired when it predicted that it could cope with steep increases in Russian alcohol duties; it now thinks the beer market there will decline this year.

Former shareholders in Scottish & Newcastle can smile. They sold their company at the top of the market in 2008 to a Carlsberg-Heineken joint bid. The Danes were desperate to take full ownership of Russian business BBH, previously a joint venture with S&N. The offer was improved three times before S&N finally submitted at £7.8bn, a price that now looks wildly over the top. A classic case of the winner’s curse. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds