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Comment - Foster's Group Phoney War still has Legs

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Don't assume that SABMiller has fired the starting gun on a bid battle for Foster's Group.

SABMiller has raised the stakes in the Foster's Group takeover story by putting together an actual bid, valued at AUD9.5bn (US$10bn), or AUD11.2bn including debt. However, media speculation about an impending bidding war for the Australian beer group looks premature.

A bid battle between who, exactly? It remains unclear who else could come into the fold. Grupo Modelo looks to be the most likely contender, but most analysts still think that the Mexico-based brewer will struggle to gain the necessary backing from its part-owner, Anheuser-Busch InBev.

Meanwhile, Molson Coors has backed away from the scene and arguably does not need yet another mature market in which to sell beer. Carlsberg is looking for acquisitions, but only in Asia. Meanwhile, the world's third largest brewer, Heineken, has distanced itself from Foster's on account of its strategy to expand in emerging markets.

Anyone looking to Asia for a competitor to SABMiller could also be disappointed. Japan's Asahi appears more interested in China and has said previously that Foster's looks too expensive.

The spike in Foster's Group shares, which stood at AUD5.2 today (22 June) versus AUD4.53 two days ago, also threatens to make the price tag for a deal prohibitive.

It's not just the money. Per capita beer consumption in Australia has fallen by around 50% since the mid-1970s, according to official data published by just-drinks, while Foster's Group's high profit margins have sparked debate about how much anyone could improve profitability.

SABMiller has the finances to pay more than its starting offer of AUS4.9 per Foster's share, but the more it does, the more difficult it will be to reap financial rewards. Foster's is a nice-to-have not a need-to-have for the Peroni brewer, even though it could benefit from the Australian group's strong cash generation.

Are the price expectations among Foster's' management and investors too high? Perhaps. In the meantime, it's possible that things could quieten down as potential suitors reconsider their position, or other interested parties wait in the hope that Foster's will become a little more affordable.


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