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Australia. Small brewers feel threat from Foster’s takeover bid

Another Australian icon is being stalked by foreign predators and small local players are worried they could be caught in the crossfire.

South African brewer SABMiller has offered $9.5 billion for Foster's Group, or $4.90 a share.

Foster's promptly rejected the offer as inadequate, and its share price soared 13.5 per cent, or $0.61, to $5.14 yesterday.

Foster's Group is the market leader in beer sales in Australia - Victoria Bitter is its most popular brand.

However, it has become a takeover target since it split from its troubled wine business last month amid mergers in the global brewing industry.

SABMiller chief executive Graham Mackay told a teleconference in London that he thought Foster's was a good buy.

"We believe that Foster's represents an attractive opportunity to acquire a leading brewer in a stable and profitable beer market," he said.

"However for a number of reasons the company has lost market share, has been underperforming for some years and continues to do so," he said.

He said SABMiller believed it could turn Foster's around because of its global reach.

SABMiller's beers include the premium brand, Peroni.

Analyst Greg Fraser from Fat Prophets thinks the bid is too low and SABMiller could raise the offer.

"It certainly looks as though SABMiller are testing the waters to see just what will be required to take Foster's off the hands of its current shareholders."

"It's probably right for Foster's board to initially reject the first offer at $4.90 per share - it does look a little opportunistic," he said.

But Peter Esho from stockbroker City Index thinks the SABMiller takeover bid is good value for Foster's shareholders because the company has been underperforming in a difficult retail market.

"If you're holding Foster's shares and you've been in them for awhile this news is a some type of a relief," he explained.

"Foster's is an icon that hasn't really gone anywhere."

He says the company's past decision to merge its beer and wine assets did not work.

"Foster's unfortunately have fallen behind of some of its brands," he added.

"So there really needs to be a commitment by somebody to come in and do all the hard work and make the numbers stack up."

If SABMiller does eventually win control of Foster's, Australia's two biggest brewers will be owned by foreign companies.

The number two beer maker, Lion Nathan which makes Tooheys and XXXX, is owned by Japanese brewer Kirin.

South Australia's Coopers Brewery would be the biggest Australian-owned brewer if a takeover of Foster's went ahead - it is still a family company.

Retail analyst Peter Ryan believes smaller brewers will also become takeover targets.

"There is a trend towards boutique brands of beer, those brands which are either organic or they have a quality element to the product," he said.

"Eventually if they get to a level where it makes sense for somebody to be able to see a return on their investment, equity will follow that and try and pump it up."

Scott Douglas runs Fusion Brewing, which makes boutique brands aimed at cafes and restaurants.

He thinks some small beer makers will go out of business if a global player takes over Foster's, because they will not be able to get shelf space in bottle shops or supermarkets.

"Just when the consumer's been educated and now starting to buy beers on taste and now get a new appreciation for beer, instead of just volume like the old days, the little guys will start going under again," he said.

However, Peter Esho thinks there will be more competition in the market not less if the takeover goes ahead.

"I think there will definitely more choice for consumers and perhaps international labels that are imported now might become a little bit cheaper if SABMiller takes over Foster's," he said.

Brewers say heavy discounting by supermarkets has harmed their sales.

Earlier in the year, Foster's withdrew some of its brands from Coles and Woolworths because the supermarket giants were selling beer below cost.

Scott Douglas thinks a takeover of Foster's will cause another price war and push out smaller brewers.

"Once they have forced out the smaller competition, then I think prices will go up," he said.

SABMiller and Coca-Cola Amatil co-own Pacific Beverages, which owns Bluetongue Brewery, and currently imports SABMiller brands such as Peroni and Pilsner Urquell.

SABMiller plans to buy out Coca-Cola Amatil's share of the business if it succeeds in its Foster's takeover.

22 Jun. 2011

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