Comment - Foster's Group Blows Hot and Cold

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Grupo Modelo is the surprise addition to a growing list of possible suitors for Foster's Group's Australian beer business. Who will it be next week?


I'd like to announce here and now that I've been in talks with my local pub landlord about raising a few bob to acquire Carlton & United Breweries (CUB). I must say at this stage that there is no certainty that a bid will be forthcoming.

Seriously, though, is there anyone that hasn't felt the hem of Foster's' Australian beer business? Well no, actually, there probably isn't. In these situations, I'm always reminded of a quote given to me by Trevor Stirling, analyst of Sanford Bernstein. "In the beer industry, everybody runs the numbers over everybody else," he said.

Foster's is one of the few remaining targets of any size that has an open share register. It also still accounts for one half of all beers sold in Australia, albeit while battling against share decay in a mature beer market.

No surprise, then, that every brewer and its dog has paused at Foster's shop window. But, that doesn't mean that we are any closer to a deal being done.

Molson Coors has had a nose around, but it probably doesn't have enough loose change to bag Foster's on its own. It makes sense for the brewer to be scouting for a partner. It also makes sense that the list of potential partners would not include top-tier brewers, like SABMiller, who would likely have the firepower to get Foster's on their own.

Enter the slightly bizarre duo of Molson Coors and Grupo Modelo, who have today caught the eye like an unusually-mismatched couple arriving at a garden party. It is made all the more strange by Modelo's on-off flirtation with Anheuser-Busch InBev, which is not at the Foster's party itself, but holds a 50% non-controlling interest in the Mexican brewer.       

Stranger things have happened, but several analysts have suggested that the Molson, Modelo dalliance may not last. "We think it highly unlikely that A-B InBev will give its consent," said Morningstar analyst Phil Gorham.

SABMiller remains most analysts' frontrunner, although still largely on the basis that it has money and hasn't done a big deal for a while. Don't forget that we've been here before. Most analysts also tipped SABMiller to beat all-comers for FEMSA Cerveza, until Heineken swooped and whisked the Mexican beer giant off to its Dutch hideaway.

Among other potential bidders, and by that I mean operational brewers all over the world, China's Tsingtao has said that it is not seeking to buy Foster's. In February, Japan's Asahi also denied interest in the Australian group.

On a broader level, conditions for a deal could be better. The Australian dollar remains prohibitively strong and Australia's beer market looks pretty lacklustre. We may have to wait a little longer for someone to break cover on Foster's.

Meanwhile, Foster's' share price certainly enjoyed another spike today, up by 3.5% on the Molson/Modelo news. With that, I leave you to ponder an interesting little piece by The Australian newspaper's John Durie, who muses that someone could be making serious money out of all this froth. 

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