SABMiller mum on possible Foster's bid

SABMiller on Monday, 23 August 2010, declined to comment on reports in London's Sunday Times and the Australian newspapers that it and Japan's Asahi were both sizing up Melbourne-based Foster's, which will next year split its wine and beer units.

Foster's, Australia's largest producer, operates in a duopoly with Kirin-owned Lion Nathan and has a profitable operating margin in the mid-30% level.

SABMiller is keen to catch up with rival Anheuser-Busch InBev, but does not need to rush to seal a purchase, valued by one analyst on Thursday at 11 billion, or 13.3 times Foster's historic core earnings before interest, taxation, amortisation and depreciation.

For a start, its rivals are not in a position to buy. Second, it carries risks.

"I'd be very surprised if they announce anything at the prices announced," said Chris Gilmour, an analyst at Absa Investments in Johannesburg.

Possible dilution

Investec analyst Anthony Geard said the acquisition of a mature market business such as Foster's could actually harm SABMiller, which gets 80% of its profit from emerging markets.

"This is not the kind of deal that I would have thought adds to the SAB story."

A Foster's acquisition could dilute the emerging market flavour that attracts US and UK investors to SABMiller, he said.

Further, there would be little opportunity to roll out globally any brands SABMiller would gain from such a purchase.

Limited growth

While the company has exploited brands such as Pilsner Urquell and Miller MGD in new markets, Foster's already has sold licences for its beers in other countries.

"You're only buying a domestic business, you're not buying something with international legs," Geard said.

Australia has a per-capita beer consumption of about 85l, more than SA's 55l figure, which makes the opportunity for growth limited.

Source: Business Day