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Foster’s rejects £6.2bn hostile bid from SABMiller

Australian brewer says ‘unsolicited and highly conditional’ offer from London-listed rival ‘significantly undervalues’ the business

Foster’s, the Australian brewer, has told its shareholders it intends to robustly defend itself against a £6.2bn hostile bid approach from London-listed rival SABMiller which “significantly undervalues” the business.

In a short statement released on Thursday Foster’s fired its first salvo since SABMiller took its bid direct to shareholders. The board described the offer at A.90 (£3.10) a share as “unsolicited and highly conditional”. It has retained Goldman Sachs, Gresham and Allens Arthur Robinson as defence advisers.

“The board of Foster’s reiterates its belief that an offer price of A.90 per share significantly undervalues the company in the context of a change of control,” Foster’s said in a stock market release. “In addition, the high level of conditionality further detracts from the proposed offer.”

The statement follows SABMiller’s announcement on Wednesday that it intends to take its takeover proposal for Foster’s, spurned two months ago by the Australian brewer, directly to shareholders in a hostile move that heaps intense pressure on the ailing beer group as it prepares to publish annual results on 23 August.

The world’s second-largest brewer, which own brands such as Peroni, Castle, Miller Lite and Grolsch, was rebuffed by Foster’s in June. The Australian brewer had used almost identical wording as appeared in Thursday’s statement, saying the approach “significantly undervalued” the business.

At the time, Graham Mackay, SABMiller’s chief executive, said: “This is a proposal to the Foster’s board … we expect to engage. This is not a hostile offer and we have given no indication we would move that way.”

Since then, however, there have been steep declines in stock markets around the world. Meanwhile, a number of beer analysts are expecting Foster’s to deliver disappointing figures next week.

Shares in Foster’s leapt 14% to A.16 after news of SABMiller’s interest was first revealed, although they have retreated since then, as expectations of an improved price or counter-bid have receded.

“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 on Wednesday.

Andy Bowley, an analyst at Citigroup, said: “[SABMiller] may have been surprised by the firm, swift and public rejection [in June]. We believe it would have needed to raise its bid price materially above A.90 in order to engage the Foster’s board to pursue a friendly transaction.”

Paul Xiradis, chief executive at fund manager Ausbil Dexia, said: “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.”

Among potential rival bidders are thought to be Mexican firm Grupo Modelo, whose brands include Corona, and which is part-owned by the Belgian firm Anheuser-Busch InBev. Grupo Modelo has cash on its balance sheet and could join forces with either Anheuser-Busch or the US brewer, Molson Coors, which is also believed to be interested.

Bowley added: “By going hostile ahead of the upcoming Foster’s results, SABMiller is applying more pressure on the Foster’s board to enter dialogue [in the] near term but keeping a lid on ultimate bid price expectations.”

Some 90% of Australia’s beer market is shared between Foster’s and Lion Nathan, with the latter owned by the Japanese brewer Kirin. Wine, though, is now a more popular beverage in the country than beer. Foster’s sold off its own wine business, which includes the Lindemans and Rosemount labels, earlier this year – a move that encouraged speculation that the rest of the company might be acquired.

Foster’s rump beer business includes brands such as Carlton Draught and Victoria Bitter. The eponymous Foster’s lager brand is much less popular in Australia than it is in the UK market, where it is owned by Heineken.

Matthew Williams, Australian equities manager at Perpetual Investments, which is Foster’s third-largest shareholder with a 4.7% stake, appeared on Wednesday to welcome SABMiller’s hostile move. “The move is welcome in that it’ll get the parties engaged,” he said. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds