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09 September 2011

SABMiller sends out its militia

The battle over Foster’s is turning nasty or ludicrous now that SABMiller has sent out its vanguard troups, made up of, you will never guess: its bean-counters! The USD 10 billion battle for control of Foster’s heated up once more when SABMiller on 2 September 2011 lobbed a grenade into Foster’s trenches, accusing its takeover target of making "misleading and deceptive" statements about its debt position and trading outlook when reporting its annual results.

With the help of its bean-counters, SABMiller made the accusations in an application to the Australian Takeovers Panel and asked that Foster’s be forced to retract the statements.

In its application, SABMiller claims "there is no reasonable basis for several forward-looking statements" in the presentation that Foster’s made to investors when releasing its annual results on 23 August 2011.

In particular, SABMiller objected to a slide headed "Foster’s full potential financial objectives - strong sustainable growth and returns".

In the slide, Foster’s says that it aims at a "mid single-digit sales growth", a target of growing earnings before interest and tax faster than sales, earnings per share faster than EBIT, and converting at least 95 percent of profits into cashflow.

SABMiller argued that even if these statements had a reasonable basis, Foster’s provided no information to support them.

SABMiller also disputed Foster’s assertion that including a favourable AUD 835 million tax ruling in its accounts would reduce its net debt to AUD 887 million, saying the figure was "inconsistent with Australian Accounting Standards".

To the likes of you and me all of this sounds pretty petty if not totally beside the point. After all, aren’t all forward-looking statements a piece of fantasy - like reading tea-leaves or staring into a crystal ball?

The reason behind SABMiller’s manoeuvring is to put more pressure on Foster’s. To this effect SABMiller is enlisting the help of the Takeover Panel to prohibit Foster’s from making further statements consistent with those under dispute until the panel has ruled on its application. It is also seeking orders that Foster’s be forced to make an announcement to the market clarifying the disputed claims.

On Thursday 8 September 2011 the Takeover Panel said it has decided not to act on an application by SABMiller.

The Panel had some concerns with the net debt statement. However these concerns were allayed by Foster’s volunteering to make an announcement clarifying the basis for reaching a pro forma net debt figure.

A decision by the Panel to uphold the SABMiller complaint would have been a serious blow to Foster’s takeover defence.

Now that SABMiller has announced an offer to shareholders on 17 August 2011 it is required to post the offer within two months (before mid-October, that is) according to Australian takeover regulations. SABMiller is expected to make a formal offer for Foster’s pretty soon - some time this September - , after which Foster’s will have to respond with a target statement.

Foster’s target statement could be the first time Foster’s names the price at which it would be willing to sell.

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