There has been a rumor that Molson Coors Brewing Co. (NYSE:TAP) is eyeing Australia’s largest brewer Foster’s Group Ltd. Molson Coors is to join with Mexico’s Grupo Modelo for coming out with the joint bid offer to takeover Foster.

Bank of America Corp and Deutsche Bank are reported to be the main banks helping Molson; Molson and Modelo are working out an ideal financial offer to take Foster’s into its ambit. However, the details of the joint bid were not disclosed.

Many potential buyers have been planning to acquire Foster’s since it announced plans last year to spin-off its struggling wine operations, which was seen as a deterrent for its growth.

Companies like Japan’s Asahi, Coca-Cola Amatil and SABMiller were the potential buyers, and analysts assume the strong Australian dollar as a possible factor that weakened the allure for Foster’s. However, in February this year, Japan’s Asahi Breweries stated that it had no interest in buying any part of Foster’s.

However, a successful takeover of Forster’s would be one of the biggest deals in the beverage sector.

Foster’s is one of the top brewers in Australia with renowned brands like VB and Cascade and has a 50% market share of Australia. Therefore, the deal if successful will not only be a strategic fit to the companies in terms of portfolio addition but will also give them the exposure to the high potential Australian market.

However, analysts feel that the Molson and Modelo team up is not very promising for the takeover as the partnership would cost Molson highly since the Mexican brewer is half-owned by Anheuser Busch InBev (NYSE:BUD), the world’s largest brewer.

Analysts apprehend that Anheuser-Busch InBev may block any such deal that enhances the value of Modelo and make the outright ownership of Modelo difficult for the former in the near future.

Analysts are of the opinion that SABMiller, Molson Coors’ majority partner in the Miller Coors joint venture in the U.S, is more likely to be a part of the team in swallowing the Foster’s Group.

Recommendation

We remain encouraged by the restructuring initiatives taken by Molson to reduce overhead costs and boost profitability. The initiatives include closure of underperforming breweries and efforts to attain efficiency in finance, administration and human resource activities. However, seasonal nature of the business of Molson Coors and increased competition from Anheuser-Busch InBevare concerns.