Investors in jitters over SABMiller abandoning its bid for Foster’s
Sometimes when hunting it’s better to wait out your prey than to act quickly. Take SABMiller. By doing nothing it is forcing Foster’s to act. Foster’s board is under shareholder pressure to negotiate with its potential acquirer SABMiller, after Foster’s shares fell below the price that SABMiller has offered. In June 2011, SABMiller had offered AUD 4.90 per share, causing Foster’s shares to jump to AUD 5.22 fuelled on expectations that the Australian company could also attract interest from other major beer groups.
Hopes of a counterbid have been fading ever since, however, resulting in Foster’s shares closing at AUD 4.66 on 5 August 2011. Now investors worry they might be left crying in their beer if SABMiller pulls out.
Australia’s beer market does not face rosy prospects, if figures from Foster’s rival Lion are anything to go by. Kirin-owned Lion reported on 5 August 2011 a sharp downturn in its beer, spirits and wine, dairy and drinks divisions for the half year ended 31 March 2011.
Lion’s beer, spirits and wine divisions in Australia and New Zealand delivered operating earnings before interest and tax of AUD 308.9 million (USD 321 million), a decrease of 10.8 percent with revenue down 6.3 percent to AUD 1.178 billion (USD 1.25 billion).
In Australia, an overall decline in the beer market saw Lion’s sales volume drop by 10.3 percent, leading to an 8.3 percent revenue decline to AUD 824.2 million (USD 859 million), it was reported.
After having grown volume share each year since 2006, Lion reported a contraction of its market share in the half due to significant pricing activity by key competitor brands.
It also estimated that the contraction of the Queensland market, following severe floods in January this year, reduced Lion’s share of the national market during the half by about 0.5 percentage points.
Lion’s CEO Rob Murray was reported as saying that low consumer confidence, fuelled by sustained economic uncertainty and the rising cost of living, continued to affect spending.
Still, the general gloom and doom will not deter Coca-Cola Amatil (CCA) from pushing back into the beer market if it is forced to give up its existing beer business with SABMiller, should SABMiller manage to take over Foster’s.
CCA’s Managing Director Terry Davis said on 9 August 2011 that if the takeover went ahead, the group intended ultimately to re-enter the beer market.
Mr Davis made the comments while revealing that the soft-drink maker’s profit had tumbled 28 percent in the six months to 1 July 2011.
CCA has a brewing joint venture with SABMiller, called Pacific Beverages, which competes with Foster’s. SABMiller did not wish to make a joint bid for Foster’s with CCA, which had no interest in acquiring a stake in the Australian brewer.
Consequently, it was agreed that SABMiller would buy out CCA’s half-stake in Pacific Beverages for AUD 305 million to AUD 380 million if it acquired Foster’s.
CCA would have the right to acquire some of the non-beer businesses from Foster’s under the deal. Likewise it was agreed that CCA would not play in the beer space for two years in Australia.
There are probably plenty of options for CCA to choose from when it re-enters the beer market. Currently the privately-owned Casella company, which is behind Australia’s biggest wine export brand, Yellowtail, is getting into beer by building a brewery at its Griffith winery in New South Wales.
In February this year Casella’s Managing Director John Casella said the company was recruiting staff and buying equipment for a "limited-production, premium beer" aimed at the export market. "It will be fairly small – probably a few million litres a year," Mr Casella was reported as saying.
Mr Casella also said it had not been decided whether the new beer would carry the Yellowtail brand.
"The cost savings available from putting a small brewery within the winery means we should be able to produce beer fairly efficiently and competitively," he added.
Rest assured that Mr Davies and Mr Casella have already been in talks.
