SABMiller will pay A$5.10 a share in cash for Melbourne- based Foster’s, the U.K. company said today. Foster’s shareholders will also get 30 cents a share as part of a previously announced capital return and a 13.25-cent final dividend. The offer was previously for A$4.90 minus dividends.
The purchase will be the biggest ever by London-based SABMiller and give it access to about half of the Australian beer market. SABMiller’s initial attempts to buy the maker of Victoria Bitter were rebuffed by Foster’s management as undervaluing the brewer, one of the world’s most profitable.
“The deal makes strategic and financial sense for SAB,” said Simon Hales, an analyst at Barclays Capital in London. “It’ll be taken well even though the headline offer price is slightly more than we would have hoped.”
SABMiller fell 66.5 pence, or 3 percent, to 2,154.5 pence as of 4.05 p.m. in London. Foster’s fell 2 cents to A$4.89 at the close of trading in Sydney today. The agreement between the companies was announced after Australian markets closed.
The bid values Foster’s at 12.5 times estimated earnings before interest, tax, depreciation and amortization, SABMiller Chief Financial Officer Jamie Wilson said on a conference call. The average for comparable transactions in the brewing industry is 11.5 times, according to data compiled by Bloomberg.
SABMiller said the revised offer gives Foster’s an enterprise value, equal to the sum of its stock and debt minus cash, of A$11.5 billion. That’s only 2.8 percent higher than the A$11.2 billion value of its original bid, it said.
“They haven’t been daft,” Julian Chillingworth, who helps manage 16 billion pounds including SABMiller shares at Rathbone Brothers Plc in London, said of the price for Foster’s.
“It’s not just about price here, it’s what they can or can’t do with the business,” Chillingworth said.
SABMiller’s acquisition of Foster’s will be the biggest takeover of a brewer since InBev NV acquired Anheuser-Busch Cos. for $52 billion in 2008.
Foster’s had previously resisted the offer as too low, instead focusing on Chief Executive Officer John Pollaers’ plan to return at least A$500 million to investors and revive earnings. Pollaers is introducing new brands to appeal to younger consumers and win back customers who switched to sweeter drinks like pre-mixed spirits. He ran the beer unit for 13 months before the company spun off Treasury Wine Estates Ltd., the world’s second-largest wine business, to focus on reviving beer earnings.
SABMiller said the takeover will have a positive effect on its per-share earnings in the first full year of ownership.
Foster’s beer operating profit margin, or earnings before interest and tax as a proportion of sales, was 36 percent last year, higher than the 30.8 percent at Anheuser-Busch InBev NV, the world’s biggest brewer, in the year ended December, and the 23.5 percent of SABMiller in the year ended March, according to data compiled by Bloomberg.
SABMiller will aim to improve Foster’s profitability by “reinvigorating and repositioning” some of its brands, including possibly selling some brands outside Australia, although not at a “significant” level, CEO Graham Mackay said today on a conference call. The Foster’s brand is also sold by SABMiller in India.
SABMiller said it has internal resources and committed financing to fund the takeover and expects to maintain a “strong” investment-grade credit profile. The brewer hired banks to raise $12.5 billion of loans for the bid, a person with knowledge of the deal said last month.
SABMiller has a higher exposure to emerging markets than most rivals and is therefore considered to have less to lose by increasing its presence in developed markets with Foster’s. The percentage of earnings from markets outside the U.S. and western Europe will drop to about 70 percent after the takeover, from more than 80 percent now, MF Global analysts estimate.
The maker of almost 200 brands from Miller High Life to Lech and Chairman’s Extra Strong Beer became the second-largest brewer by volume after at least 30 deals in developing nations from Colombia to Poland and India.
SABMiller said it has entered into swap contracts that will give it about 4 percent of Foster’s shares, reducing the cash cost of the acquisition by about A$69 million.
Mackay said he didn’t anticipate a competing bid for Foster’s. “If there is anyone, we don’t know who he is, or of him, but you can never say never.”
Foster’s must pay SABMiller a break fee of A$99 million in the event that it walks away from the deal.
SABMiller has retained JPMorgan Chase & Co., Moelis & Co., Royal Bank of Scotland Group Plc and Morgan Stanley as financial advisers and Allen & Overy and Hogan Lovells International LLP as legal advisers, the U.K. brewer said.
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