The beer war: SABMiller vs Fosters - the rejected bid

19 July 2011


The backdrop:

SABMiller's failed bid of acquiring Fosters in a deal that valued it at 10 billion USD. The deal was rejected by the Fosters' board on grounds that it severely undervalued the firm.
About the Firms:

SABMiller: The largest beer manufacturer in the world, it has presence in 75 countries with over 200 brands and 70,000 employees. It's major market lies in US, South Africa, Europe and North America and the brand "Castle Lager" is in its portfolio.

Fosters: The largest player in the Australian beer market with close to 50% market share and a number of successful brands in its portfolio.


About the offer:

SABMiller made a tender offer of AUD 4.90( USD 5.18) a share on June 20,2011which was rejected by the board.

The Analysis:
There are certain parameters to consider here in order to understand the decision behind SABMiller’s move:

  1. Fosters does not have a controlling family shareholder, which makes it easier for SABMiller to acquire it.
  2. Fosters’ strong brand equity will be a prize catch for SABMiller’s portfolio of products , thus further enhancing its market leadership as the second largest manufacturer
  3. The acquisition bid is particularly significant as it will give SABMiller control of 46% of the Australian beer market (Fosters’ share) in which SABMiller’s share is 1.8%
  4. The deal is directed at the booming and growing Austrailian economy
  5. The deal will provide Fosters the opportunity to further consolidate its position with the help of expertise from SABMiller

On the flip side of the deal are the various reasons:

  1. The international rights for Fosters are already sold
  2. There are lot of bidders in the race including Molson Coors Brewing Co. of US,Grupo Modelo SAB de CV of Mexico, Asahi Breweries of Japan and Anheur Busch InBev the world’s largest beer maker which is bound to shoot up the share prices in the run up to the bid.
  3. Fosters has been facing tougher competition off late in the Austrailian market from smaller niche players

Though the initial bid of 5.18 USD has been rejected by Fosters , the market reaction has been positive so far. So while the acquisition bid by SABMiller might not succeed even in future, Foster looks highly likely to be acquired by at a higher price which might be in the range of 5.40-5.50 USD per share  in a deal that could be worth as high as 11 billion USD !

[The article has been written by Abhirup Bhattacharya. If you liked reading it, you can reach him at abhirup.merch@gmail.com or on twitter @abhirupbh ] 


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