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16 September 2011

Shame on both houses

SABMiller may have become a bit of a laughing stock last week when on 8 September 2011 the Australian Takeovers Panel rejected its application to investigate Foster’s accounting policy, which SABMiller considered "misleading and deceptive".

But likewise Foster’s stubbornness in rejecting SABMiller’s bid as too low was further undermined when ACNielsen market figures for the May-to-July quarter 2011 were released which showed that Foster’s share of the local packaged beer market has declined.

The brewer had 47.8 percent of packaged beer sales by volume for the quarter, compared with 49.9 per cent for the same period a year earlier.

The decline was compounded by the fact that overall beer market volume fell by 6.8 percent in the 12 months to the end of July, with the biggest declines in Foster’s Victoria Bitter, Pure Blonde and Carlton Cold brands.

At the same time, rival brewer Lion, which is owned by Japan’s Kirin, increased its market share from 41.9 percent to 43.1 percent.

In part, Foster’s decline in market share reflects a more positive company pricing approach (higher prices that is) since late 2010. However, it also reflects more aggressive competitor pricing (i.e. discounting).

Packaged beer accounts for about 70 percent of the market, so SABMiller is likely to seize on the latest Nielsen data to strengthen the case for its bid.

All in all, zero points to both companies.

Analysts have labelled SABMiller’s failed attempt to rope in the Takeovers Panel over its hostile USD 10 billion bid for Foster’s as a sideshow, arguing the brewer will need to substantially raise its offer to drag the deal over the line.

Meanwhile, the investment community continues to focus on the price being offered by SABMiller for Foster’s, calling it low-ball and unlikely to succeed.

SABMiller turned its approach to Foster’s hostile in August 2011, offering shareholders AUD 4.90 per share minus the payment of Foster’s 13.25 cents per share final dividend.

The offer is now AUD 4.76. Shares in Foster’s closed at AUD 4.85 on 9 September 2011.

On 12 September 2011 Foster’s chairman David Crawford wrote to shareholders asking them to ignore the overtures of SABMiller and its takeover bid and stick with current management as the benefits of the wine demerger are yet to be realised with a turnaround of the beer and cider group "on track".

He said there was significant value in Foster’s remaining independent.

It is widely expected that SABMiller’s statement (and firm offer) could arrive in investors’ mailboxes as early as 19 September 2011.

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