SABMiller takes offer to Foster's shareholders

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SABMiller PLC has gone hostile with its $10-billion (U.S.) bid for Australian beer maker Foster's Group Ltd., showing it still has a thirst for the kind of assets that are becoming both increasingly unfashionable and increasingly rare in the industry: Big brewers in mature markets.

The British-South African brewing multinational took its previous offer of $4.90 (Australian, or $5.06 Canadian) a share, rejected by Foster's management in June, directly to Foster's shareholders Tuesday, just days ahead of the release of Foster's fiscal-year financial results that are widely expected to show sluggish growth.

Investors had been hoping that management's rejection of SABMiller's earlier overtures would shake competing bids out of the woodwork, but none have emerged. Meanwhile, hopes that SABMiller would sweeten its offer have been dashed by the recent stock-market slump.

Foster's closed at $4.96 on the Australian Securities Exchange. Investors expressed hope that the hostile offer would spur Foster's management to engage in talks with SABMiller – something it didn't do when the deal was first proposed, as CEO John Pollaers said the offer was so low-ball that it didn't warrant discussion. Foster's on Wednesday urged shareholders to reject the offer, saying it significantly undervalued the company.

But while analysts suggested that the price could creep higher in order to nail down a deal, they said they don't expect any alternatives to emerge from other big names in the global brewing business, such as heavyweights Anheuser-Busch InBev, Heineken and Carlsberg.

In fact, after years of industry consolidation that saw the biggest names pull off progressively larger deals – peaking with InBev's $52-billion (U.S.) purchase of Anheuser-Busch in 2008 – there are few big-name brewing assets in developed markets that haven't already been taken out.

Analysts said that while this doesn't suggest an end to beer-industry consolidation, most companies have shifted their focus – to smaller acquisitions and emerging markets, where brewers can tap into increasingly affluent consumers who haven't yet developed a passion for suds.

"It's not that companies are content where they are; if there were opportunities in areas where they have an interest, I think they'd still jump at them," said Lauren Torres, global beverage analyst at HSBC Securities USA Inc. in New York. "But Australia is a rather mature market. It's a low-growth market.

"Most companies are more inclined to do deals involving emerging markets," she said. "There's more [growth]momentum to be had."

She said the so-called BRIC economies – Brazil, Russia, India and China – are high on the industry's list, because of their economic growth, their growing and relatively young middle-class and their still relatively low levels of per-capita beer consumption. Asia in general is also very attractive to the industry.

While SABMiller's pursuit of Foster's seems out of touch with this trend – indeed, it came under criticism from investors when the company revealed its offer in June – it actually may provide vital fuel for the company's emerging-market expansion.

"Foster's has unbelievable margins. It's very profitable," said Brian Yarborough, analyst at Edward Jones & Co. in St. Louis.

Ms. Torres said: "[SABMiller is]taking the money generated in more-profitable mature markets, and using it to invest in emerging markets."

Some industry watchers have suggested that if SABMiller fails with Foster's, it might target North America's Molson Coors Brewing Co., another cash-generating mature-market giant, as an alternative. Mexico's Grupo Modelo is another potential big-name target, and Brazil's brewers continue to attract attention. Earlier this month, Japan's Kirin Brewery Co. Ltd. acquired a majority stake in Schincariol, Brazil's second-largest brewer, for $2.6-billion.

But in general, analysts said, the field is thinning – both for big assets and for big global players who are potential buyers.

"It's getting to the point where there are only going to be five or so big players," said Mr. Yarborough. "There aren't a lot of big players left to be acquired. It's going to be a lot of smaller deals."

"The game-changers, I think, are behind us," Ms. Torres said.

Mr. Yarborough added that while smaller craft brewers in North America may be targets because they offer pockets of growth in an otherwise mature market, they are probably too small to attract the big global buyers.

"If you look at who's growing in Canada and the U.S., it's the craft brewers. The problem is, for the big brewers, they're just a dot on the map."

With a file from Reuters