just On Call - SABMiller CEO defends Foster's Group rationale
SABMiller's share price had dropped by 3% on the London Stock Exchange by 17:00 BST today (21 September), faster than the FTSE100 average, although it clawed back some ground at the end of trading.
The fall likely reflects ongoing concern among some of the Peroni brewer's shareholders that the group's deal to buy Foster's will dilute its exposure to fast-growth beer markets. Per capita beer consumption in Australia has been falling since the 1970s.
Sanford Bernstein analyst Trevor Stirling told just-drinks today: "I think it’s a pricey deal [at] 13.1 EV/EBITDA, which compares to the 12.4x InBev paid for Anheuser-Busch, a company where there was much more obvious upside from cost-cutting."
However, SABMiller CEO Graham Mackay strove to quell scepticism in the brewer's own ranks. Speaking to analysts on a conference call, he said that the deal is "amply justified" and will add to SABMiller's profits from the first year following completion of the acquisition.
Foster's is already one of the most profitable brewers in the world, but Mackay said that he is confident of achieving double-digit earnings growth at the brewer by cutting costs and focusing more strongly on premium beer. He was not specific about cost savings, but he said that he is "relatively comfortable" with analysts' estimates that the brewer could seek synergies of AUD130m per year.
Justifying the takeover deal, which will see SABMiller pay AUD5.1 per Foster's share versus its previous offer of AUD4.9, Mackay said that the higher bid price gives the group "access to Foster's earlier than we otherwise would have had". In addition to the AUD5.1 offer price, Foster's will hand AUD0.3 per share back to its shareholders prior to the deal closing. It will also pay a dividend of AUD0.1325 per share, which means shareholders will receive AUD5.5325 per share in total.
The two companies have highlighted different elements of the deal price, with SABMiller keen to show that it is not paying too much and Foster's' management intent on demonstrating that they have delivered a decent deal for shareholders. SABMiller valued the deal at AUD9.9bn, or AUD11.47bn including debt and the capital return. Foster's, meanwhile, said that the deal gives it an enterprise value, including debt, of AUD12.3bn.
Foster's CEO, John Pollaers, told journalists today: “The only way I can think about [the offer] is how the man on the street is going to think this through. Compared to the AUD4.90 I'd have in my hand – with very significant conditions attached – now I will have AUD5.5325 in my hand.”
SABMiller's Mackay said that there is significant room for improvement in the Foster's business. "The brand portfolio in Foster's has been around for a while and has been very heavily extended," he told analysts. "Quite a lot of those actions weren't particularly well thought through. There would perhaps be tightening up of their portfolio, as well as extension [opportunities]."
He added that there has been "considerable churn in the management and, with it, a lack of focus by generations of management which preceded the current one". SABMiller said that it is also keen to maintain Foster's' licence deal on Corona, even though Corona's brand owner, Mexico-based Grupo Modelo, is 50%-owned by Anheuser-Busch InBev.
The deal is expected to close by the end of the year. After this point, Foster's will become part of SABMiller's Asia division.
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