SABMiller still king of the Castle

SABMiller said it now expects its biggest ever deal to be sealed by the end of 2011 - making it number one in the Australian beer market with a 50% market share.

The purchase is part of SAB's strategy to move more aggressively into the emerging markets of Africa, Latin America, Asia and Eastern Europe. It also counters falling volumes in its key markets of the US and Central/Eastern Europe as consumers there prepare for a more austere few years ahead.

In a statement to the JSE on Friday, SAB said the Australian Federal Treasurer on recommendation from the Foreign Investment Review Board (FIRB), had approved its acquisition of Foster's and the remaining 50% of Pacific Beverages.

But what stands out about the Australian approval is the set of undertakings SAB had to enter into before it was given the go ahead.

A press statement issued by Australian deputy prime minister and treasurer Wayne Swan showed that Australia had ensured the Foster's operations, jobs and brand were kept at home.

The undertakings, said Swan, recognise the significance of Foster's "to our economy and to our community, and support Australian jobs".

In terms of SAB's commitment, the management of Foster's operations will continue to be located in Australia; it will not relocate any of Foster's existing brewing facilities offshore to produce beer for Australian domestic consumption; and it will continue to invest in Foster's "iconic" Australian brand portfolio.

However, it is Australia's ability to elicit a jobs promise from the brewing giant that could serve as an example to SA in reviewing major foreign investments in local companies.

Swan said SABMiller's current intention was that Foster's operational employees would remain in their existing roles "on the same or substantially similar conditions to those which they currently enjoy".

Foster's employs around 2300 people, primarily in Australia.

SA's conditions relating to Wal-Mart's R16,5 billion (US$1,9 billion) acquisition of a 51% stake in consumer goods distributor Massmart included a jobs clause but this spanned just two years.

More jobs conditions would go a long way to appeasing irate trade unions while helping foreign investors realise that keeping and growing jobs is a business currency in SA.

This is exactly how SAB has viewed the conditions of its Australian deal.

"Given the local nature of Foster's brewing business and its focus on Australian customers, these undertakings are consistent with our current intentions for the business, and will not affect our ability to integrate Foster's and PacBev or to compete effectively in Australia," SAB said.

In the meantime, all that is left for the deal to be concluded is SAB shareholder approval, which it hopes to secure next Thursday.

Conclusion of the deal will also see SAB succeed where others have failed.

The London-based brewer of Peroni, Miller Lite and Grolsch launched a bid for Foster's in June but after Foster's rejected the AUS$4.90 a share offer as too low, the company took its offer directly to shareholders.

SAB's offer raised the cash bid to AUS$5.53 and allowed Foster's shareholders to keep Foster's final dividend of 13.25 Australian cents.

SA-based analysts canvassed in September believed that SAB's acquisition of Foster's "makes a lot of sense".

"Given the low interest funding cost of 5%, the deal will be earnings enhancing from the outset, but it will take around five years before the deal is value enhancing," said Head of Industrials at Old Mutual Investment Group, Cavan Osborne.

Osborne noted that the Australian beer market was one of the world's most profitable after USA, Brazil and Russia with operators achieving high operating margins.

Chris Gilmour, an analyst at Absa Investments told I-Net Bridge/BusinessLIVE that Australia remained an attractive market. Despite often being considered a matured economy, it was recognised as an emerging economy.

Gilmour pointed out that the country avoided recession in 2008, and also benefited from its location, close to rising Asian markets.

Standard Bank said in a note on SAB that the Fosters acquisition would add to the growth outlook and improve cash flows from its Asian operations.

"The success of the deal will not only be limited to the financial gains but will also, in our view, centre around the integration of the units," the bank said.

At the end of the day, SABMiller has put the acquisition of Foster's down to being "a very attractive commercial opportunity" and the market is sure to drink to that - cheers.