Olly Wehring

Foster's takeover talk is a load of froth

By: Olly Wehring - 30 August 2006 16:38

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Is Foster’s Group really a takeover target? Despite shares in the Australian drinks giant fizzing to their highest point in over 15 years this week, speculation that InBev or SABMiller would be interested in buying the company seems wide of the mark.

Foster’s would be unattractive to a pure brewer. The company generates around 40% of its profits from its wine business, operations that it is also still in the process of restructuring after its takeover of Southcorp.

InBev or SABMiller would not derive any synergies from keeping Foster’s wine assets and would need to line up a buyer for the business. While, in theory, that is not out of the question, few major wine players would be keen to snap up a wine portfolio that remains unsettled post-Southcorp.

Nor does Foster’s appear ready to follow the sale of its international beer business by offloading its domestic brewing assets. The company has worked hard to organise its domestic distribution arrangement along multi-beverage lines, where beer, wine and spirits are handled together. What’s more, Foster’s enjoyed a 17% rise in earnings from its domestic beer business, proving it can make money from a mature beer market.

SABMiller has already signalled where it thinks future growth in the Australian beer market will be with a joint venture with Coca-Cola Amatil that will push its stable of premium beer brands.

InBev, meanwhile, is unlikely to plunge into a mainstream Australian beer market categorised by slow growth when it has enough problems driving sales in similar markets in Western Europe.

Foster’s CEO Trevor O’Hoy may have spent the last couple of days saying that the company was on the “radar” of multinational drinks producers as a “strategic” asset but this sounds like a move to reassure investors that the company is a dynamic one - rather than an indication that bids are on the horizon.

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Foster's takeover talk is a load of froth

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