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Foster’s to Return $525 Million to Shareholders to Thwart SABMiller Offer

Foster’s Group Ltd. (FGL), Australia’s biggest brewer, will return at least A$500 million ($525 million) to investors as it resists SABMiller Plc (SAB)’s hostile takeover bid.

The return may include a capital reduction or share buyback, the world’s most profitable independent major brewer said in a statement today. Melbourne-based Foster’s posted a net loss of A$89 million in the 12 months ended June on charges from its former wine unit.

Buying back stock may help retain shareholder support as Chief Executive Officer John Pollaers tries to revive earnings, including using A$55 million of cost reductions on brand promotion and international sales. The Foster’s board says SABMiller’s A$9.5 billion offer is too low and comes after natural disasters and stalling Australian consumer spending hurt demand and narrowed margins.

The plan “buys Foster’s management more time and gives them options to do more,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “There had been expectations they would do a A$1 billion buyback.”

Shares Gain

Foster’s rose 1.8 percent, the most in a week, to A$4.99 at the 4:10 p.m. close of trading in Sydney, above SABMiller’s A$4.90 a share offer. The stock has gained 10 percent since the day before SABMiller’s bid was rejected on June 21.

The company plans to return the money to shareholders this financial year and the amount may be more than A$500 million depending on market conditions, it said. Foster’s in July said it will get A$390 million in cash refunds and interest after winning a dispute with the Australian Commissioner of Taxation.

The company is targeting “mid single digit” sales growth in the current year with earnings before interest and tax to rise more than revenue, Foster’s said, without providing more specific forecasts.

“The key message is that the turnaround of the business is on track,” Pollaers said in a Bloomberg TV interview. “We’ve got an incredibly efficient asset base and what we are looking to do now is set ourselves even greater benchmarks.”

London-based SABMiller said Aug. 17 that it will cut its offer by any dividends paid out. Foster’s today said it will pay a second-half dividend of 13.25 Australian cents.

Wine Writedowns

Pollaers has been CEO of Foster’s since it completed the spinoff of Treasury Wine Estates Ltd. in May, ending a 15-year involvement in wine that cost more than A$8 billion to build and resulted in about A$3 billion of writedowns.

The company’s net loss reported today included A$1.2 billion of losses related to the wine assets, including transaction costs and foreign currency reserves.

Excluding items, profit for the year was A$495 million, compared with the A$494 million median estimate of three analysts surveyed by Bloomberg News.

Earnings before interest and tax from Australian brewing fell 6.2 percent to A$847.8 million, the company said.

Pollaers, who spent almost 20 years at spirits maker Diageo Plc (DGE) before joining Foster’s in 2010, is betting that spending more on promoting brands and cutting production costs will revive growth.

Market Share

“I certainly didn’t join the group for it to be sold,” Pollaers told reporters on a conference call today. “Our commitment is to turn this business around.”

Foster’s share of the Australian beer market has fallen to less than 50 percent from about 55 percent in 2005, as consumers shifted to craft brews and pre-mixed spirit drinks. The slide has eased and the company is holding at the same level as a year ago, it said.

“The turnaround is by no means complete,” Pollaers said.

January’s flooding in two of Australia’s three most popular states crimped sales and lowered profitability at the domestic beer business for the first time in a decade.

The company is cutting 145 jobs across its business and will review its “asset footprint,” which should be concluded within six months, Foster’s said today.

The company’s domestic beer operating profit margin, or earnings before interest and tax as a proportion of sales, fell to 38 percent from 38.7 percent a year earlier.

That’s higher than the 23.5 percent of SABMiller in the year ended March and 30.8 percent at Anheuser-Busch InBev NV, the world’s biggest brewer, in the year ended December, according to data compiled by Bloomberg.

Overseas Earnings

Foster’s international earnings were little changed at A$18 million. The brewer last week named James Doherty to head its international unit, which sells beer in 45 markets and accounts for 2 percent of the company’s sales.

“We’re just not playing in that category to any scale in international markets,” Pollaers said. “Over a decade of distraction by wine, the international beer business just hasn’t had the focus.”

The Foster’s board declined to enter talks with SABMiller, the world’s second-largest brewer by volume, prompting the bidder to take its offer straight to shareholders on Aug. 17.

The takeover offer from the maker of Miller Lite and Grolsch will have to rise by about 6 percent to A$5.20 to succeed, according to the median estimate of 13 analysts surveyed by Bloomberg News.

To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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