Bid: Foster’s Rejects Lite Bid

SABMiller and its local mate, Coca Cola Amatil are dreaming if they think they can get Foster's for the current cheap 8.2% premium in the $4.90 a share offer, which bobbed up yesterday.

Fosters released the news of the offer in a short two-paragraph statement:

"Foster's Group Limited (Foster's) announces that it has received an unsolicited, incomplete, non-binding and conditional proposal from SABMiller plc to acquire all of the shares in Foster's via a scheme of arrangement at a price of $4.90 per share in cash.

"The Board of Foster's believes that the proposal significantly undervalues the company in the context of a change of control and, as such, it does not intend to take any further action in relation to it."

While the bid values the company at $9.5 billion, it's cheap and too skinny. Including $1.8 billion in debt, the enterprise value is $11.3 billion, but its the cash offer that counts.

It was only 37c above the $4.53 close on Monday.

SABMiller argued yesterday that its offer at $4.90 was "attractive to Foster's Group shareholders".

SABMiller said the price represents "a significant premium of 14.5% to the price of Foster's of $4.28 as of 2 June."

"The proposal consideration is all cash, providing certain value at closing for Foster's shareholders, and would be financed from SABMiller's existing resources and new debt facilities," SABMiller said.

SABMiller said that it's in a position to conclude an agreed transaction quickly, as it would say.

But several things come to mind, such as the reaction of the market: Foster's shares jumped more than 13% to a day's high of $5.16.

They closed up 61c at $5.14.

Nearly 103 million shares, worth over half a billion dollars were traded yesterday as hedge funds and punters piled into the stock in expectation of a bidding war.

That indicates punters reckon SABMiller will have to raise the offer value to more than $10 billion (and Australian dollars, not US dollars).

And they are punting on other bidders emerging, such as Asahi of Japan or Anheuser InBev.

Other major brewers include Heineken and Carlsberg, both from Europe.

The second point that occurs is that SABMiller said the offer price was at a 14.5% premium to the Foster's price on June 2, completely (and deliberately no doubt) ignoring a sharp price rise on June 3 that saw the Fosters share price rise to $4.50, a move that drew a query from the ASX.

Fosters said they didn't know anything, but clearly something was in the wind and trading around that time and in options should be examined by regulators (but they won't).

The offer comes a week after Bloomberg trumpeted an exclusive that Mexican brewer, Modelo (half-owned by Anheuser InBev, the world's biggest brewer) and small US/Canadian brewer Molson Coors (which has been sniffing around Fosters for more than a year and held around 5% through a derivatives deal) were on the verge of bidding for Fosters.

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Nothing happened and the speculation died away.

Around six months ago, media speculation suggested that SABMIller was on the verge of bidding for Fosters, but that went away, only to return yesterday morning.

Helping clear the way for the SABMiller bid, its local partner Coca-Cola Amatil announced that it had amended its joint venture terms with SAB to enable the brewer to bid for Foster's.

CCA said the existing arrangements would limit SABMiller’s ability to acquire Foster’s shares in its own right.

‘‘SABMiller does not wish to make a joint bid with CCA unless it results in SABMiller having financial management and operation control of FGL,’’ CCA said in a statement yesterday.

‘‘CCA does not intend to make offers to acquire shares in FGL in its own right or as a passive minority shareholder.’’

The two companies are 50-50 joint-venture partners in Pacific Beverages, which manufactures the Bluetongue brands and distributes products such as Peroni Nastro Azzurro, Grolsch and Pilsner in Australia and New Zealand.

CCA said, should SABMiller make an offer for Foster’s within five years and acquire at least 50.01% of the brewer or declares its offer unconditional, SABMiller would buy out CCA’s half stake in Pacific Beverages for between $305 million and $380 million. (That might not be approved by the ACCC is Fosters and its 37%.)

There would also be possible additional payments, CCA said, as well as non-compete provisions restraining both companies from going head-to-head in certain product lines for 24 months.

CCA said it would also have the right to acquire some Foster’s businesses.

"CCA will have the right, conditional on any necessary corporate and regulatory approvals, due diligence and various commercial matters, to acquire the whole or part of the Australian spirit and RTD business of FGL, the Australian non-alcoholic beverages business of FGL and the Fijian Brewery and Fijian liquor and Fijian non-alcoholic beverage business of FGL at multiples ranging from 5 to 10 times EBITDA," CCA said in yesterday's statement.

‘‘These amendments are designed to deal with the situation where SABMiller wishes to acquire FGL and we don't,’’ CCA group managing director Terry Davis said in the statement, dated June 20, 2011.

‘‘If they do we will receive an excellent price for our half share of the Pacific Beverages joint venture and the potential opportunity to supplement our alcoholic beverage strategy by the acquisition of certain of the assets of FGL.

‘‘We believe that if CCA’s shares in Pacific Beverages are sold under the new arrangements, the purchase price itself will deliver a two to three per cent lift in total earnings per share.’’

The two companies have, by mutual consent, also locked in a 10-year deal for the manufacture, sale and distribution of Beam spirits in Australia that now sits outside the Pacific Beverages joint-venture.

That was first revealed several months ago and then altered quite recently.

That statement from CCA indicates that SABMiller wants to buy Fosters without CCA's involvement, except as a buyer of certain assets after the event.

It means the end of CCA's ambitious beer strategy. It will always be a bit player in alcohol and will have to look elsewhere for growth.

Coca Cola Amatil shares rose 14c to $11.46, a rise of just over 1%.

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