Written by Dana Cimilluca for online.wsj.com
LONDONâ€”Iconic Australian brewer Foster’s Group Ltd. dropped its resistance to a takeover by SABMiller PLC and agreed to a sale to its U.K. rival for a sweetened price of more than $10 billion.
The deal values Foster’s at 5.10 Australian dollars a share, or A$9.9 billion (US$10.17 billion), 4% above what SABMiller offered when it kicked off its pursuit of the company in June. Foster’s said Wednesday that as part of the deal, it would return 30 Australian cents a share to its shareholders and that Foster’s shareholders owning the stock as of Sept. 7 would be entitled to a dividend of 13.25 Australian cents in October. That would bring the value of the offer to A$5.53 a share, or 13% above SABMiller’s first offer
SABMiller’s original offer came just a month after Foster’s completed the separation of its beer and wine operations. .Although many industry watchers expected the demerger to lead to multiple bids for the beer business, no rival bid to SABMiller’s emerged, though Foster’s said Wednesday that it would still consider one. That, as well as recent choppiness in global financial markets, likely helps explain why Foster’s was ultimately unable to manage to extract more of a takeover premium out of SABMiller.
The U.K. brewer’s shares fell 1.6% to Â£21.85 in London Wednesday. Foster’s shares, which registered a small decline in regular trading in Australia, were closed there by the time the announcement was made.
When it was first proposed, some SABMiller shareholders questioned the logic of the tie-up, given the company’s push to expand into faster-growing developing markets, and not developed ones with lower growth profiles like Australia. But Foster’s, Australia’s biggest brewer by sales, is a high-margin business, and after missing out on recent dealsâ€”including the roughly $7 billion acquisition of Mexico’s Femsa Cerveza that Heineken NV sealed last yearâ€”SABMiller was keen to secure this one.
For SABMiller, the rationale for the deal appears to be mainly about running Foster’s better and more efficiently by folding it into the global juggernaut. Analysts have estimated that the combination could produce some A$150 million in cost savings a year.
In an interview, SABMiller Chief Executive Graham Mackay said Foster’s hasn’t been managed as well as it could have been in the pastâ€”in part because its executives were distracted by challenges in the company’s wine businessâ€”and that gives SABMiller scope to create shareholder value through improvements. “Foster’s has an enviable portfolio of local brands and that’s where there’s been some undermanagement,” he said.
The Australian economy has also held up relatively well in the global economic slowdown and that also attracted SABMiller to Foster’s. Still, Mr. Mackay said that Foster’s is “not a must-have.”
While the Foster’s brand is the face of the company world-wide, it has licensed the brand to others in most countries around the world, and inside Australia the company is better-known for labels including VB, Crown Lager and Carlton Draught. It also has arrangements allowing it to sell brands including Asahi and Corona in Australia.
The company, which is also the biggest producer of cider in Australia, had revenue of A$2.3 billion in the year ended June 30.
SABMiller, meanwhile, is the world’s second-largest brewer by volume after Anheuser-Busch InBev NV, with brands including Pilsner Urquell, Peroni Nastro Azzurro, Miller Genuine Draft and Grolsch. It is also one of the world’s biggest Coca-Cola bottlers. In the year ended March 31, SABMiller had revenue of $28.3 billion.
SABMiller had been gearing up to take its offer directly to Foster’s shareholders this week after Foster’s management rebuffed its original offer. SABMiller had further escalated hostilities by accusing the Australian brewer of making misleading financial forecasts, a claim that was dismissed by Australia’s takeover watchdog.
But after publicly exchanging barbs over the proposed deal for months, the two sides finally started talking “amicably” last week, Mr. Mackay said on a conference call with reporters Wednesday. He then met with Foster’s Chairman David Crawford in Istanbul to help seal the deal, he added in the interview.
SABMiller expects the deal to completed by the end of the year.
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