RBS has taste for Foster's as bid war set to be brewing

Published on Sunday 22 August 2010 20:15

Brewing groups SABMiller and Asahi Breweries are taking a close look at Foster's beer operations, valued at more than $10 billion (£6.5bn), but have not yet made any formal offers, sources said yesterday.

Long-running interest in the Australian brewer's beer business, know as Carlton & United Breweries, resurfaced yesterday after newspaper reports said SABMiller was considering buying Australia's biggest brewer.

The Scotsman understands that SABMiller has hired Royal Bank of Scotland and JP Morgan as advisers for a potential bid but no decision had been made.

Foster's said in May it would split the beer unit from its ailing wine business, putting its valuable beer operations with brands including Foster's Lager, Victoria Bitter and Pure Blonde at the centre of takeover talk in the brewing world.

The Australian beer market is a virtual duopoly with some of the highest profit margins in the sector. Foster's controls half the market, with most of the rest held by Kirin-owned Lion Nathan.

The national beer market is broadly stable rather than in decline as in western Europe.

Most of the other big brewers such as Anheuser-Busch InBev, Heineken and Carlsberg are likely to be restricted from bidding due to high debts from previous deals, and so analysts expect a narrow field in any auction.

A SABMiller spokesman had no comment to make on Foster's and said it planned no announcements.

Analysts expect any suitors will only emerge after Foster's splits off its wine division in early 2011 when complex debt and structural issues are resolved, and they were doubtful over an early beer sell-off deal.

"We remain sceptical that any bid will come here before the planned demerger of the beer division in early 2011," said analyst Ian Shackleton at brokers Nomura in London.

Analyst Matthew Webb at JP Morgan Cazenove believes SABMiller will look at Foster's beer business and could entirely debt fund the deal. It would be moderately earnings enhancing in the first year and make annual cost savings of around $150 million.

He values Foster's beer business at a historic 13.3 times core EBITDA earnings putting a value on it of $11bn.

Asahi, Japan's number two brewer after Kirin, is also interested in Foster's, sources said. It has been building up a war chest for acquisitions and is keen to expand outside Asia.Nomura and Rothschild are advising Asahi.

"SAB and Asahi are the two names that keep popping up and given the demerger process in train you would expect people who ever thought they might look at Foster's to get teams together to do so," said one source familiar with the situation.

Analysts say Foster's beer could also be a target for Canadian brewer Molson Coors, which owns a derivative-based 5 per cent stake in Foster's, and Coca-Cola Amatil which has a joint venture with SABMiller in Australia.

The takeover talk pushed Foster's shares up more than 7 per cent to their highest level in more than two years, with volume three times the daily average over the past 30 days.

Foster's said yesterday it was not aware of any unannounced information driving its stock.