SABMiller Plc (SAB), the world’s second- largest brewer by volume, will take its A$9.5 billion ($10 billion) bid for Foster’s Group Ltd. (FGL) directly to shareholders, going hostile after the board rejected the price as too low.

The cash offer is worth A$4.90 a share, less any dividend paid out by Foster’s, SABMiller said today. The board of Melbourne-based Foster’s has shown “no willingness to engage,” SABMiller said, after it announced an initial offer on June 21. Foster’s had said the bid “significantly undervalues” Australia’s largest brewer, whose shares closed at A$4.96 today.

“Anybody who expected SAB to pay a bid premium on top of a price that had a bid premium in it was foolish,” said Trevor Stirling, an analyst at Sanford C. Bernstein in London. SABMiller’s initial offer to the Foster’s board was 8.2 percent higher than the target’s closing price the previous day.

An acquisition of Foster’s would be SABMiller’s biggest and give the maker of Castle lager about half of Australia’s beer market, including Victoria Bitter. Chief Executive Officer Graham Mackay has made more than two dozen acquisitions since he moved SABMiller’s listing to London in 1999, though he’s passed on some of the industry’s biggest deals since 2008. He shunned buying the beer unit of Fomento Economico Mexicano SAB last year after rival Heineken NV (HEIA) paid a price SABMiller deemed too high.

SABMiller shares reversed initial declines and rose 20 pence, or 0.9 percent, to 2,138 pence at 12:05 p.m. in London.

Bid Multiples
SABMiller, which started selling beer to gold prospectors in South Africa in 1895, has expanded through acquisitions including Colombian brewer Bavaria and the Grolsch brand. The company became the second-biggest brewer, behind Budweiser maker Anheuser-Busch InBev NV (ABI), after the $5.6 billion takeover of Miller Brewing Co. by South African Breweries Plc in 2002.

Since the June 21 bid for Foster’s, which SABMiller said values the target at 12.5 times its estimated 2011 earnings before interest, taxes, depreciation and amortization, the Australian brewer said it will get A$390 million in cash refunds and interest after winning a dispute with the Australian Commissioner of Taxation. That reduces the multiple to about 11.8 times estimated 2011 Ebitda, according to analysts at Investec Securities in London. The average multiple for key transactions in the beer industry in the past five years was 13 times earnings, Nomura Holdings Inc. has estimated.

No Rival Bidders
Andrew Butcher, a spokesman for Foster’s external media adviser Butcher & Co., declined to comment on today’s bid. Nigel Fairbrass, a London-based spokesman for SABMiller, declined to comment beyond the company’s statement.

Foster’s shares rose about 13 percent on the day of SABMiller’s first approach and fell as low as A$4.66 on Aug. 8 amid global market tumult and the absence of any rival bidder.

“Highly volatile equity market conditions have weakened Foster’s bargaining position, as has the absence, to date, of rival bidders,” analysts including Andy Smith at MF Global in London wrote today in a note.

Representatives of competitors Asahi Group Holdings Ltd., Suntory Holdings Ltd. and Anheuser-Busch InBev declined to comment today on the offer or their intentions.

SABMiller’s move “should have been expected,” said Will Seddon, who helps oversee more than $300 million, including Foster’s shares, at White Funds Management in Sydney. “They went suspiciously quiet, which was a ploy to get the share price to soften before going hostile.”

Wine Spinoff
The offer is contingent on getting at least 90 percent of the outstanding shares of Foster’s. SABMiller will fund the deal from existing resources and new debt. The U.K. company will provide a bidder’s statement to Australian regulators and Foster’s, and expects to mail that information to Foster’s shareholders about two weeks after it files to the company.

In May, Foster’s spun off wine unit Treasury Wine Estates Ltd. to focus on the beer business, where it’s trying to stem five years of market-share losses. After adjusting for the spinoff, Foster’s has gained 20 percent since May 2010, when it announced the plans to split its wine and beer businesses, increasing speculation of a takeover approach for both.

Foster’s Chief Executive Officer John Pollaers, who ran the beer unit for 13 months before the wine spinoff, has introduced new brands to appeal to younger consumers and win back customers who switched to sweeter drinks such as pre-mixed spirits. The executive plans to boost Foster’s share of faster-growing craft and premium labels with brews such as Fat Yak and Big Helga and reduce its reliance on stalling brands like Victoria Bitter.

Earnings Report
Foster’s is due to report earnings on Aug. 23, with the company expected to post net income of A$697 million for the 12 months ended June, according to the average of four analyst estimates compiled by Bloomberg. The company had a year-earlier loss of A$464.4 million after writing down the value of its wine assets. Excluding items, profit was A$711.3 million in 2010.

“I don’t think anyone’s expecting fantastic numbers out of Foster’s and there hasn’t been an alternative bidder,” said Sean Fenton, who helps manage $1.1 billion at Tribeca Investment Partners in Sydney. He doesn’t hold Foster’s shares. “Without another bidder coming in and being aggressive, it’s hard to see SABMiller needing to make a huge bump. The bid might look quite attractive if we get some average numbers from Foster’s.”

Both brewers could cut costs and increase earnings if a transaction is completed, Moody’s Investors Service said in June. Moody’s rates Foster’s Baa2, two levels above junk status, and SABMiller one notch higher at Baa1.

SABMiller’s Mackay said at the time of the June bid that his plan to seek financing for the Foster’s purchase would still allow the company to maintain an investment-grade credit rating.

SABMiller is being advised by JPMorgan Chase & Co, Moelis & Co., Royal Bank of Scotland Group Plc and Morgan Stanley.