Comment - Foster's Group beer sale is a slow burner
How much does SABMiller want Foster's Group beer arm?
SABMiller can expect to face strong competition from Japan for Foster's Group's Australian beer business and it is unlikely that the Miller Genuine Draft brewer would seek to acquire the business at any price.
It is an open secret in the industry that SABMiller has taken another peek at Carlton & United Breweries (CUB) since Foster's Group said it would separate the beer business from its soured wine division. As a matter of course, most of the multinationals would look at any asset of this size if it seemed likely to become available.
"In the beer industry, everybody runs the numbers over everybody else," one analyst told just-drinks today (23 August). There is also no doubt that SABMiller has the resources to finance a deal for CUB and is clearly tempted by the prospect.
What is less clear, and always has been as far as we're concerned, is how much SABMiller wants CUB. How far is the brewer prepared to stretch for a business that, despite leading its sector and offering attractive margins, has been losing share to rivals and operates in a mature beer country?
Currently, SABMiller's beer joint venture with Coca-Cola Amatil in Australia, Pacific Beverages, has a 1% volume share of the country's beer market. A deal for CUB could make SABMiller the beer market leader with one swipe, although Pacific Beverages has been growing share in the premium category and this year opened a brewery in the country.
As with most deals, any sale of CUB will likely come down to valuation. Heineken's purchase of FEMSA Cerveza at the start of 2010 may work as an important indicator of SABMiller's strategy. In that case, Heineken swooped after SABMiller refused to break strict financial discipline to acquire Mexico's number two brewer. FEMSA Cerveza effectively sold for 11.4 times forecast earnings in a high growth market. Early analyst consensus has marked CUB at 12 times forecast earnings, which would mean a price of more than US$10bn.
"Why would they pay a 12xs multiple for Foster's if they wouldn't pay 11.4xs for FEMSA Cerveza?" Sanford Bernstein analyst Trevor Stirling told just-drinks today. He suggested that SABMiller might be unwilling to go much beyond a 10x earnings multiple for Foster's.
It is possible that SABMiller would seek an ally to make a move. Molson Coors, with whom SABMiller already runs MillerCoors in the US, has declared its interest in CUB and has built up a 5% stake in Foster's Group. SABMiller, then, might recruit Molson Coors to remove another bidder from the race and, by doing so, keep down the selling price.
A consortium could also give SABMiller extra resources to fight the main threat to its ambitions for CUB.
That threat lies further east and comes in the form of Asahi Breweries and Suntory. The Japanese brewers are thirsty for overseas acquisitions, have access to finance, enjoy favourable currency and domestic interest rates and increasingly see South East Asia and Oceania as their sphere of influence. Japan's Kirin Holdings acquired Australia's Lion Nathan last year and its domestic rivals will be watching Foster's closely. Japan's beer giants tend to mirror one another's moves.
For now, though, it is all shadow boxing. Foster's will report full-year numbers tomorrow, which could shed more light on its demerger process and on CUB's performance. But, it's early days and the demerger is still not expected to be complete until the first half of next year. Until that point, the troubled Foster's wine business lurks behind CUB, ready to be a thorn in the side of any brewer wishing to jump the gun with a pre-emptive bid.
We can expect a lot more jostling for position over the next few months.
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