Foster’s Group Ltd. (FGL), Australia’s biggest brewer, hasn’t been in contact with SABMiller Plc (SAB) since rejecting a A$9.5 billion ($10 billion) takeover offer from the maker of Peroni and Grolsch last week.
“No contact at all,” Chief Executive Officer John Pollaers said in an interview in Melbourne, after speaking at a business breakfast. London-based SABMiller, the world’s second- largest brewer by volume, said June 21 it would “seek engagement” after Foster’s rejected the cash offer as too low.
Pollaers, who has run the beer business for 14 months, is focusing on stemming market-share losses and cutting production costs to free up cash and boost promotion of brands. He’s also developing new brews to win back consumers who switched to sweeter pre-mixed drinks and craft beers.
“He is right in sticking to his job and not things outside of his control,” said Theo Maas, who helps manage about $5.4 billion at Arnhem Investment Management in Sydney, including Foster’s stock. “He runs a pretty attractive asset, and hopefully the market will be better next year and we will see more growth numbers coming out of the business.”
In May, Melbourne-based Foster’s spun off its wine unit Treasury Wine Estates Ltd. to focus on the beer business, where it has suffered five years of market share losses, including for the nation’s top-selling brew Victoria Bitter.
Strategy Change
Foster’s has managed to stem losses in market share after it revamped how it deals with customers as a specialist brewer rather than the “multi-beverage” strategy of Pollaers’ predecessors who combined beer and wine sales teams.
“Twelve months on we’ve stabilized our market share, in fact grown our market share, and the attention to fundamentals is paying off,” Pollaers said today. “I’m not, and the team aren’t, allowing anything to distract us from that.”
Foster’s shares fell 0.2 percent to A$5.15 at the 4:10 p.m. close of Sydney trading. The stock, after adjusting for the spun-off wine unit, has surged 24 percent since announcing the potential split on May 26 last year. The benchmark S&P/ASX 200 index has gained 8 percent in the same period.
SABMiller bid A$4.90 a share in cash for Foster’s, an offer the Australian brewer said “significantly undervalues” the stock.
Half of Market
The acquisition would be SABMiller’s biggest and give the maker of Castle lager about half of Australia’s beer market. SABMiller has made a series of acquisitions including Colombian brewer Bavaria and the Grolsch brand since it began selling beer to gold prospectors in South Africa in 1895, propelling the company to its ranking behind Anheuser-Busch InBev NV.
SABMiller Chief Executive Officer Graham Mackay has made more than two dozen acquisitions since he moved the brewer’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 up a price it deemed too high.
Mackay told analysts last week that Australia is among the world’s most profitable countries to make and sell beer. It takes the average worker 12 minutes to earn enough money to buy half a liter of beer, less time than in Canada or in Spain, he said.
Acquiring Foster’s would boost SABMiller’s profitability. Foster’s beer business had a margin, which measures earnings before interest and taxes as a proportion of revenue, of 37 percent in the 12 months ended June 2010, the company said in February, citing the most recent full year of data. That’s the widest of any independent brewer in the world and exceeds the 23.5 percent at SABMiller and 30.8 percent at Anheuser-Busch InBev NV (ABI), according to data compiled by Bloomberg.