While SABMiller Plc (SAB)’s A$4.90 offer for Foster’s Group Ltd. (FGL) is unlikely to win over shareholders, the Peroni maker may not have to go as high as the market anticipated two months ago to win Australia’s biggest brewer.
SABMiller, which yesterday took the A$9.5 billion ($10.1 billion) bid directly to investors, may have to raise the offer to A$5.20 a share, according to the median estimate of 13 analysts surveyed by Bloomberg News. That’s 6 percent more than the current terms, and 10 cents a share lower than estimated in a June survey, when SABMiller’s first approach was rejected by a Foster’s board as “significantly” undervaluing the brewer.
Since SABMiller’s original proposal, no rival bidders have emerged, global markets have sunk and rivals including Kirin Holdings Co. and Carlsberg A/S cut profit forecasts amid sinking demand. Foster’s closed at A$4.96 in Sydney trading yesterday. The shares soared as high as A$5.21 a share following the June 21 offer before falling as low as A$4.66 amid turbulent markets.
“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 in a note.
Representatives of competitors Asahi Group Holdings Ltd., Suntory Holdings Ltd. and Anheuser-Busch InBev NV (ABI) declined to comment on the offer or their intentions. A spokesman for Heineken NV (HEIA) said its aim was to expand in emerging markets.
No Hostile Takeovers
SABMiller, which hasn’t made a hostile purchase in the more than two dozen acquisitions it has made since 1999, may take a page from InBev NV, Carlsberg and Heineken’s handbooks, said Gerard Rijk, an analyst at ING Groep in Amsterdam. When its first approach to buy Anheuser-Busch Cos. was rejected in 2008, InBev raised the price by 7.7 percent to secure the industry’s largest purchase ever. Carlsberg and Heineken increased a joint bid for Scottish & Newcastle Plc by 11 percent to 800 pence.
“We’ve lost the opportunity of a 10 to 15 percent higher bid” for Foster’s from SABMiller, Rijk said. “That’s lost in the stock market crash” since the June offer, said the analyst, who estimates that most renewed bids in brewing transactions have been accepted at a similar increase to the original price.
SABMiller’s hostile offer applies more pressure to the Foster’s board to start talks, yet “keeps a lid on ultimate bid price expectations,” said Citigroup Inc. analysts including Andy Bowley in a report to clients. Citigroup doesn’t expect SABMiller to be successful at the current price, estimating it will need to raise the offer to about A$5.20 to secure a deal.
Deal Multiples
Andrew Butcher, a spokesman for Foster’s external media adviser Butcher & Co., declined to comment on the bid. Nigel Fairbrass, a London-based spokesman for SABMiller, declined to comment beyond the company’s statement.
Foster’s is worth about 12.3 times forward earnings before interest, taxes, depreciation and amortization in a bid situation, according to Citigroup, which recommends investors “hold” their Foster’s shares. SABMiller said in June that the offer valued the Australian maker of Victoria Bitter at about 12.5 times Ebitda and stuck by that valuation yesterday. InBev paid about 13.2 times Anheuser’s earnings before interest, tax, depreciation and amortization, according to Bloomberg data.
Kirin Holdings Co. paid 10.5 times Ebitda for the 54 percent of Lion Nathan Ltd. it didn’t already own in 2009 in a deal that gave it full ownership of Australia’s second-largest brewer, Bloomberg data shows. The average multiple for key beer- industry transactions in the past five years was 13 times earnings, Nomura Holdings Inc. estimated after the prior offer.
Share Buyback?
Foster’s, which reports earnings on Aug. 23, said last month it may buy back shares or boost dividends after winning a dispute with the Australian Commissioner of Taxation. Foster’s will get A$390 million in cash refunds and interests and is reviewing its dividend policy and capital management options.
SABMiller’s hostile bid “makes sure that Foster’s management actively consider their options, especially with regards to how they handle cash distributions following the recent positive tax ruling, at next week’s full-year results,” said Simon Hales, an analyst at Barclays Capital in London. “SAB are aware undoubtedly that the numbers next week are not going to be particularly brilliant.”
In building SABMiller from Africa’s biggest brewer, Chief Executive Officer Graham Mackay has earned a reputation for not paying too much for purchases. He shunned buying the beer unit of Fomento Economico Mexicano SAB last year after Heineken paid a price it deemed too high. Foster’s, the most profitable independent major brewer, would be his biggest purchase yet and give SABMiller about half the Australian beer market.
Emerging Markets
The maker of Grolsch and Castle lager “is putting it in holders’ and the board’s minds that they’re not an open chequebook — that they’ve ascribed fair value to the asset and aren’t going to overpay for the business,” Hales said.
SABMiller has a higher exposure to emerging markets than most rivals and is therefore considered to have less to lose by increasing its exposure to developed markets with an acquisition of Foster’s. The percentage of earnings from markets outside the U.S. and western Europe would drop to about 70 percent after buying the brewer, from more than 80 percent now, Deutsche Bank AG analyst Jonathan Fell has estimated.
SABMiller said the bid will be funded from existing resources and new debt facilities. Turning the offer hostile is unlikely to affect SABMiller’s credit ratings, Fitch Ratings said, adding that its leverage calculations wouldn’t change materially even if the price were raised by 10 percent.