Modelo and Molson mull joint bid for Foster's: source

NEW YORK/MELBOURNE Fri Jun 3, 2011 7:13am EDT

A six-pack of Foster's beer is seen in Melbourne in this February 15, 2011 photo illustration. REUTERS/Mick Tsikas

A six-pack of Foster's beer is seen in Melbourne in this February 15, 2011 photo illustration.

Credit: Reuters/Mick Tsikas

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NEW YORK/MELBOURNE (Reuters) - Molson Coors Brewing Co (TAP.N) and Mexico's Grupo Modelo (GMODELOC.MX) are exploring a joint bid for Australia's Foster's Group Ltd FGL.AX, a source said, amid talk further suitors may emerge for the maker of VB and Cascade beer.

Speculation of a possible takeover pushed Foster's shares up more than 7 percent early on Friday, lifting the value of Australia's largest brewer to A$8.9 billion ($9.5 billion).

The stock pulled back in afternoon trade to close 3.5 percent higher after Foster's said it was not aware of any reason for the gains.

Foster's has been the subject of takeover talk since it announced plans last year to spin-off its struggling wine operations, which was seen as a deterrent to potential suitors.

Since then, potential buyers such as world No.2 brewer SABMiller (SAB.L) have been seen as the most likely to bid, according to banking sources and analysts.

A successful bid for the company would be the biggest deal in the beverage sector globally and the largest inbound Australian takeover this year, according to Thomson Reuters data.

"It is 100 percent likely that they (Molson and Modelo) have been contemplating that kind of thing, but only in the sense that any major global brewer is always going to be looking at potential targets," said Angus Gluskie, a portfolio manager at White Funds Management in Sydney which holds Foster's shares.

"But they have to make a decision on whether it is a good time or a bad time to act on it. There are a couple of strategic reasons why you may not do it and the Aussie dollar is probably the biggest of them," Gluskie said.

The Australian dollar is trading at $1.06, having hit a post-float high near $1.10 in April. It has surged 25 percent since Foster's first flagged the idea of splitting its beer and wine operations in May 2010.

Sources in Australia familiar with the situation said Foster's had not received a direct takeover approach from Molson or Modelo.

One source told Reuters that banks including Bank of America Corp (BAC.N) and Deutsche Bank AG (DBKGn.DE) are helping Molson, which makes Coors Light beer, and Modelo, the maker of Corona beer, come up with financing for a possible offer for Foster's. The person declined to be named because the talks are not public.

Foster's shares rose to A$4.43 on heavy turnover, after touching a peak of A$4.62, the highest since early May when the beer and wine units were listed separately.

Thanks to Friday's surge, the combined beer and wine groups are worth 1.9 percent more than before the split on May 9. The broader Australian market .AXJO has fallen 3.7 percent over the same period.

ATTRACTIVE ASSETS

Foster's is seen as an attractive asset for its high margins and 50 percent market share in Australia, although beer volumes have sagged in recent months with a poor summer and consumer downturn.

UBS analysts say Foster's margins for beer are about 37 percent, nearly double global peers.

SABMiller is considered the most likely bidder, according to sources and analysts, although sources close to the company have said previously the strength of the Australian dollar made a potential bid too expensive.

China's Tsingtao Brewery Co (0168.HK) said in May it was not involved in bidding for Foster's, while Japan's Asahi Breweries (2502.T) said in February it had no interest in buying any part of Foster's.

Private equity groups are seen as the most likely bidders for Treasury Wine Estates (TWE.AX), the world's second largest wine company after Constellation Brands (STZ.N). Foster's rebuffed an approach last year from Cerberus Capital Management CBS.UL for the wine operations.

In late 2008, Molson emerged as a holder of a 5 percent stake in Foster's, leading to talk that it could be a likely suitor. Molson has since unwound the position at a profit.

COMPLICATIONS

Molson Coors, which has a joint venture in the United States with SABMiller, has a market capitalization of $7.6 billion and dominates the Canadian beer market with a 40 percent share. It is under pressure to expand through acquisitions, according to analysts who point to the $1.2 billion in cash on the company's balance sheet.

But teaming up with Modelo would "make life complicated," said Morningstar analyst Philip Gorham, since the Mexican brewer is half-owned by Anheuser-Busch InBev SA (ABI.BR), the world's largest brewer.

"Molson would be torn between two large, influential players," he said. Still, he said the timing made sense for Molson, as it is nearly done wringing out savings from the MillerCoors venture, and Foster's dominance in Australia fits with Molson's business, which is concentrated in the United States, Canada and Britain.

Foster's, Modelo, Molson, SAB, AB InBev and Deutsche declined to comment. Asahi and Bank of America were not available.

Even though Modelo does not have experience with overseas acquisitions, it has many international partnerships through which it sells its Corona and Negra Modelo beers around the world. Foster's has marketing rights to sell Corona in Australia.

Molson also lacks a strong track record of international deal-making.

"Because of the nature of consolidation, you've got people that get into bed with each other whom you might not expect," said Tom Pirko, founder of consulting firm Bevmark LLC.

Pirko said it would be interesting to see if AB InBev moves to block any such deal by Modelo, since it is widely believed that AB InBev would like to buy Modelo outright, and its buying a stake in Foster's would make it more expensive.

Molson shares fell 3.1 percent to close at $44.36 on the New York Stock Exchange on Thursday.

(Additional reporting by Martinne Geller in NEW YORK, Jessica Hall in PHILADELPHIA and Michael Smith in SYDNEY; Editing by Ed Davies and Dhara Ranasinghe)

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