Modelo and Molson rumoured to consider joint bid for Foster’s
So much for stock market hype. As soon as the rumour broke that the most unlikely of buyers had set their eyes on Foster’s, shares in the brewer went up more than 7 percent early on 3 June 2011, raising its market capitalisation to USD 9.5 billion. It seems that investors must be getting so desperate for a deal that, if only for a second, they could believe a bid by Molson Coors and Mexico’s Grupo Modelo was in the offing.
Foster’s has been the subject of so many takeover speculations since it announced plans last year to spin-off its struggling wine operations that we at BRAUWELT International find it hard to believe this one could have any substance to it.
Grupo Modelo is the number one Mexican brewer and owner of the Corona brand, which is distributed in Australia by Foster’s.
Molson Coors was created by the merger of Molson of Canada and Coors of the U.S. in 2005.
The share spike prompted a query from the Australian Securities Exchange, but Foster’s said it was unaware of any information to explain the spike in its share price and recent trading activity in its securities.
Some analysts in Australia still thought it likely that Molson and Modelo have been contemplating that kind of thing, but only in the sense that any major global brewer is always going to be looking at potential targets.
This still begs the question: would such a deal make sense?
Foster’s is seen as an attractive asset for its high margins (37 percent EBIT) and 50 percent market share in Australia, although beer volumes have gone down in recent months due to poor summer weather and declining consumer confidence.
In late 2008, Molson Coors emerged as a holder of a 5 percent stake in Foster’s, leading to talk that it could be a likely suitor. Molson has since unwound the position at a profit.
Molson Coors, which ranks 7th among the world’s top brewers with a market capitalisation of USD 7.6 billion, is heavily dependent on mature beer markets for its profits. It’s the number two brewer in Canada (40 percent market share) behind AB-InBev’s Labatt and likewise ranks second in the U.S. (30 percent) and the UK (20 percent).
It is under pressure to expand through acquisitions, according to analysts who point to the USD 1.2 billion in cash on the company’s balance sheet, it was reported. Moreover, Molson Coors is nearly done wringing out savings from the MillerCoors venture.
But why team up with Grupo Modelo? The Mexican brewer is half-owned by AB-InBev. It will be interesting to see if AB-InBev moves to block any such deal by Modelo, since it is widely believed that AB-InBev would like to buy Modelo outright, while Modelo buying a stake in Foster’s would make an eventual takeover by AB-InBev more expensive.
For years, SABMiller has been considered the most likely bidder for Foster’s. It already owns the rights to the Foster’s brand in the United States. But China’s Tsingtao Brewery Co has also been named and so has Japan’s Asahi Breweries.
Wait and see.
