Foster's rejects $10B bid from SABMiller

MELBOURNE | SYDNEY: Foster's Group, Australia's biggest brewer, rejected an A$9.5-billion ($10 billion) cash offer from SABMiller as too low in what would be the biggest takeover in the beer industry since 2008. Foster's rose the most in 25 years in Sydney trading to close at A$5.14 after SABMiller's offer of A$4.90 a share, or 8.2% higher than Monday's closing price.

SABMiller, the world's second-largest brewer by volume, said it will “continue to seek engagement” with Foster's. An acquisition of Foster's would be SABMiller's biggest, giving the maker of Peroni and Grolsch about 50% of Australia's beer market including the top-selling Victoria Bitter. Japan's Asahi Breweries and Mexico's Grupo Modelo SAB de CV are also said to have been interested in Melbourne-based Foster's since the company that traces its origins to 1854 announced last year it may spin off of its wine business, the world's second-largest.

“It's game on,” said Paul Xiradis, who manages about $12 billion, including Foster's stock, as chief executive officer of Ausbil Dexia in Sydney. “It's a business they know, and know well, so there's the vertical integration that goes with that. Foster's generates a lot of cash clearly — that's obviously the other attraction.” The offer by London-based SABMiller “significantly undervalues” Foster's, the Australian brewer said. After including debt, the offer values Foster's at A$11.2 billion, SABMiller said.

That values the Australian company at 11.8 times the A$948 million in earnings before interest, tax, depreciation and amortisation (Ebitda) the Foster's beer division posted last year. Kirin Holdings paid 13.8 times Ebitda for the 54% of Lion Nathan it didn't already own in 2009 in a deal that gave it full ownership of Australia's second-largest brewer. “We suspect the Kirin/Lion multiple will represent the board's benchmark for a accepting a revised or alternative bid,” Andy Bowley, an analyst at Citigroup, said in a note to clients on Monday.

“On our modeling, this would equate to a range of A$5.40-A$5.50 per share, or 10-12% above the rejected bid.” SABMiller's offer is 10.4% higher than the Foster's average trading price in the 20 trading days through Monday. That compares with an average of about 13.4% for brewery deals pending and completed in the past five years.