Blog: Heading Southcorp
Chris Brook-Carter | 20 April 2005
The two potential mergers that have dominated these pages’ headlines this week couldn’t have more different feels to them. While the Foster’s bid to take over Southcorp has looked set to drag on indefinitely, market sources have suggested Allied Domecq and its joint suitors, Pernod Ricard and Fortune Brands, could hammer out a deal within the next 24 hours.
That, of course, has all changed in the blink of an eye, with news today of a trading halt on both Southcorp’s and Foster’s shares.
Quite what will come from the pending announcement is still unclear. The wake of the ongoing impasse between both groups over the price of the bid has raised the prospect in recent weeks of Foster’s walking away.
“With the Australian wine industry conditions deteriorating rapidly..., we believe Foster’s is unlikely to increase its bid materially,” one research note from Merrill Lynch read this week.
“The logical outcome that appears increasingly likely, given Foster’s has stated anything less than 90% of Southcorp is not on the agenda, is Foster’s walking away from its current bid for Southcorp,” its analyst said.
However, the negative outlook for Australian wine predicted by some of the investment community may temporarily work in Foster’s favour because it prompted Southcorp’s share price to fall below that of Foster’s offer this week for the first time since the bid was made.
The fall has made Southcorp’s chances of holding off its rival’s advances all the harder and may have prompted this resumption of talks. Indeed, according to one of just-drinks’ sources within Southcorp, the deal is all but inevitable, with the primary issue being one of timing.
The cards are now stacked in Foster’s favour and the beer and wine group still argues its current offer is generous and that it is prepared to wait patiently.
However, we may now see a token rise in the offer price to allow Southcorp’s board to save face and smooth the deal through - a move that will not please all of Foster’s own investors who feel the company is over-paying already in this tough climate.
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