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Comment - Foster's Group Ruling is Small Beer

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Foster's Group may have won a battle, but it is losing the war.

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Foster's Group has averted disaster by persuading Australia's Takeover Panel that its profits guidance and debt calculations are sound. But, its broader defence against SABMiller's original AUD4.9 per share cash offer continues to weaken.

For a whole week now, Foster's management has watched the Australian brewer's share price languishing below SABMiller's bid price. Foster's closed on AUD4.85 today (8 September), having briefly sunk to AUD4.78 earlier in the week.

Following SABMiller's initial approach at the end of June, Foster's' shares rocketed from AUD4.53 to AUD5.14 in the space of 24 hours. Those days must seem like a long way off now. And, yet, they will not be too distant to prevent some investors from raising questions as to exactly what price the Foster's management expected to secure from would-be suitors. 

In a drip-drip strategy, SABMiller, together with a little help from global stock market conditions and a lack of rival bidders, is draining the amber nectar out of Foster's.

Its complaint to the Takeovers Panel dealt another pyschological blow. It may have failed on paper, but it has kept Foster's rooted on the backfoot and, more than likely, sown a few more doubts in the minds of Foster's shareholders.

As we have said before, SABMiller is working to tight margins. There is scepticism about a move that would dilute the Peroni brewer's exposure to emerging markets - widely considered to be its key strength - and several analysts have questioned whether the UK-listed brewer can achieve enough return on its investment. 

SABMiller, though, is adamant that it can make the numbers work. Given that AUD4.9 was its starting price, there is likely scope to increase this by a small margin if necessary. SABMiller, then, is edging towards a victory on points.


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