Foster’s could lose license for Stella Artois and Corona Extra
Corona Extra, though brewed by Grupo Modelo, is 50 percent owned by AB-InBev. Although Grupo Modelo is in an arbitration dispute with AB-InBev over the latter’s acquisition by InBev, recent reports indicate that a resolution of the dispute could see AB-InBev increase its stake in Grupo Modelo. That way, Corona Extra could become part of the AB-InBev portfolio.
The Foster’s Group has had the Corona licence for a long time under short contract and has been successfully growing its market share in the premium beer category.
If AB-InBev were to re-organise its licences and transfer them to one local partner only, that would make sense.
Yet, there might be another reason why AB-InBev could want to hand the licences to Lion Nathan: Foster’s uncertain future.
In recent weeks, analysts have made renewed efforts to jazz up Foster’s for a sale. U.S. brewer Molson Coors, Japan’s Asahi and a joint venture of Coca-Cola Amatil and SABMiller are seen as likely buyers of Foster’s beer business.
Foster’s has long been seen as a takeover target due to its strong cash flow, stability of earnings and the market position of its beer operation. Foster’s enjoys a near-duopoly in the Australian market with Lion Nathan.
The company is also relatively cheap compared with its international peers, being valued at about 13 times forecast earnings as against an average multiple of 17 times among global brewers. The recent acquisition of FEMSA Cerveza (Mexico) by Heineken has triggered the thought that eventually Foster’s could be a serious target for SABMiller.
Moreover, industry observers are voicing concern about Foster’s beer division which has lost market share. After years of flat-lining, the overall beer market in Australia is growing again and Foster’s current share is about 51 percent, down from 54 percent only a few years ago.
Foster’s leading brand Victoria Bitter (VB) continues to slide, in spite of a greatly increased marketing spend. However, the company says that the new brand positioning, launched last July, will be maintained. New extensions to the brand, VB Raw and VB Gold, have not yet generated great success and overall Foster’s beer volumes have lagged those of key competitor Lion Nathan.
Perhaps this is the right time for Foster’s shareholders to sell out in order to cash in?
