Fosters Groups beer business has lost some sparkle in H1

Foster's Group's beer business has lost some sparkle in H1

It was supposed to symbolise the starting gun for a bid battle, but Foster's Group's half-year results may have fired a blank.

The Australian company has announced, as expected, the final schedule for demerging its domestic beer business, Carlton & United Breweries (CUB), and its global wine arm, Treasury Wine Estates. Speculation has been fizzing for months that the process will lead to takeover bids, particularly for CUB.

There are signs, however, that takeover talk could be on the back-burner for the time being. Australia's beer market has taken a turn for the worse in the past year. The recent floods in Queensland have exacerbated the problem.

Yesterday, Foster's reported a “significant decline” in the Australian beer market in the six months to the end of December. CUB's volume sales fell by around 6% for the half-year, a decline that the brewer blamed on poor weather and “unusually high beer market volume in the prior year”.

Right now, Australia's beer market doesn't look that attractive. Last week, before Foster's announced its latest numbers, Japan's Asahi surprised the market by ruling itself out of a move for CUB. "The price [for CUB] is expensive and recently (Australia's) market is looking tough," Asahi's president, Naoki Izumiya, told Reuters.

In November last year, Molson Coors appeared to dampen its own stated interest in CUB by relinquishing a 5% stake in Foster's Group. Molson Coors' CEO, Peter Swinburn, trod an ambiguous line: "If there were any opportunities we wanted to take advantage of there, we'd act accordingly," he said of Australia.

Following these moves, SABMiller has emerged as the most likely industry bidder for CUB and has stated its interest in the brewer. On the one hand, the prospect of fewer potential rival bidders might help SABMiller to get CUB for a more reasonable price. The division is valued at between AUD9bn and AUD12bn.

However, it is not clear how serious SABMiller's interest has become. The current strength of the Australian dollar, in addition, might make a deal less attractive to the UK-based brewer. At the same time, some observers have questioned whether SABMiller - the emerging market specialist - would want to lumber itself with a CUB business that, although the biggest brewer in Australia, has been leaking market share and is facing volatile conditions in a mature beer market.

It still seems likely that CUB will solicit takeover offers, but there is a growing possibility that a deal will not be as immediate as some had imagined.