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SABMiller play for Foster’s expected to drag on for months

SABMiller's bid for Foster's Group is expected to take months to resolve, in the absence of any other bidders emerging, as Foster's tries to get the world no.2 brewer to sweeten its $10 billion offer, investors and analysts said.

Foster's shares have jumped to trade 6 percent above SABMiller's offer, rejected on Tuesday, with investors betting that SABMiller may have to raise its original bid by at least 10 percent to seal the deal.

"SABMiller is the logical buyer," said John Grace, portfolio manager at Ausbil Dexia, which owns a 0.5 percent stake in Foster's, according to Thomson Reuters data.

"They've got intentions to grow their global market share and Foster's presents an attractive opportunity. They're trying to engage with the board to come to an agreement. So it's early days," he said.

Foster's is alluring for its 50 percent market share in Australia, where its Victoria Bitter, Pure Blonde and Cascade beers help it earn some of the best margins in the developed world.

Others own the Foster's brand offshore, including SABMiller, which owns the brand in India.

Brokers have speculated that SABMiller, which brews Peroni, Grolsch and Miller, would have to offer at least A$5.25 to draw Foster's into talk, and would have to pay at least A$5.40 to clinch the deal. Foster's shares last traded at A$5.19.

"They'll have to up the price a little bit," said a portfolio manager at a Sydney-based fund that owns Foster's shares, declining to speculate on what would be a fair price.

"The beer volume's been down. They're trying to turn it around. So you're buying at the bottom of the cycle. Why would you give it away?"
DISCIPLINED BUYER

SABMiller is seen as the only likely bidder, with others seen as too laden with debt to get involved. Key potential suitors have signalled they were not interested, including world no.3 brewer Heineken , Japan's Asahi Breweries and Denmark's Carlsberg (CARLb.CO).

SABMiller has got to know the Australian market through its Pacific Beverages joint venture with Coca-Cola Amatil , so it has a good view on the turnaround potential in the business.

It is known for its discipline on acquisitions, having last year walked away from bidding for Mexico's FEMSA, bought by Heineken in an all-share deal worth $7.6 billion, including net debt, which valued the maker of Dos Equis beer at 11.2 times trailing EBITDA.

At an enterprise value of A$11.2 billion, SABMiller's bid for Foster's is already at 11.8 times trailing EBITDA.

It has agreed to pay C-C Amatil up to A$380 million for its stake in the joint venture, if it is successful with its bid for Foster's, which it needs to factor into how much it would be willing to pay for Foster's.

24 Jun. 2011

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