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* Foster's beer operations seen valued at up to A$12 bln
* High margins and a duopoly market make for lucrative
* Global brewers and Coca-Cola Amatil possible suitors
By Victoria Thieberger
MELBOURNE, June 2 Foster's Group Ltd FGL.AX,
Australia's largest brewer, could attract takeover bids of up
to $10 billion from suitors including SABMiller and Asahi,
after a long-awaited decision to split off its struggling wine
Analysts and fund managers say potential predators have
been reluctant to move on Foster's, despite one of the
highest-margin brewing operations in the world, because of the
work needed to turn around the wine operations amid a global
Foster's conceded last week that its decade-old strategy to
mix beer and wine had fizzled, after total writedowns for wine
that analysts estimate at up to A$3 billion, but said it will
not formally split off wine until 2011. [ID:nLDE64P0BG]
"At least this clears the way for potential bidders to look
at the company," said Brian Han, portfolio manager at
Constellation Capital Management, which owns Foster's shares.
The Carlton & United Breweries beer unit, run by former
navy weapons' engineer John Pollaers, generates 85 percent of
Foster's group earnings, and has a profit margin of 38.5
"There is talk about loss of market share (in beer) but
they still have a very strong position in a duopoly market and
it throws off a ton of cash, so it would be an attractive prize
to a lot of buyers," Han said.
For StarMine comparative data on potential suitors, click
For a Graphic on Australia's beer and wine market:
PLENTY OF INTEREST
Foster's declined to comment about potential suitors. When
it announced the beer and wine split last week, the company
said it had received no approaches.
A deal is expected to be worth around A$12 billion for the
beer assets alone, with brands including Foster's Lager,
Victoria Bitter and Pure Blonde. Foster's has about 50 percent
of the Australian beer market, ahead of rival Lion Nathan
And there appears to be plenty of interest in the brewer.
Analysts say Japan's Asahi Breweries (2502.T), with a war
chest for acquisitions of up to $4.6 billion, would be keen.
SABMiller SAB.L, which owns the brewing rights to
Foster's in the United States, has declined to comment on a
Daily Telegraph report last week that it has held early stage
talks with advisers about making a bid.
Molson Coors (TAP.N) Chairman Peter Coors said he would be
interested in Fosters, according to press reports last week.
Still, Molson Coors, which owns a 5 percent stake in
Foster's, would need to team up with a beer giant such as
Carlsberg (CARLb.CO) for financial firepower, analysts say.
Local rival Coca-Cola Amatil (CCL.AX), which has an
Australian joint venture with SABMiller, is also considered a
likely predator. Coca-Cola Amatil would not comment for this
"Amatil would definitely be interested and the logic of
putting together a beer and soft drinks company is inescapable
because they are very similar products. It makes a lot more
sense than putting together a wine and beer company," said Tom
Elliott, managing director of hedge fund MM&E Capital that
takes stakes in merger situations.
"But all the big global (beer) players will have a look at
it," added Elliott, whose fund owns Foster's shares.
Lion Nathan dropped a planned $4.9 billion takeover of
Amatil early last year.
Japan's Kirin Holdings (2502.T) bought the 54 percent of
Lion Nathan it didn't already own last year for $2.5 billion,
equivalent to 12.5 times forecast earnings.
Applying a similar multiple to Foster's would value it at
above A$12 billion, based on the company's forecast of earnings
before interest and tax of A$1.08 billion.
"This is the last strategic asset you have got in the
western world where you've got EBIT margins in the high 30s,
you've got 50 percent market share of a mature market, you've
got strong cashflow and decent assets," said one fund manager
and shareholder, who spoke on condition of anonymity as he was
not authorised to speak to the media.
"Global brewers operate on about half those margins. It is
going to be coveted by somebody," he said.
SABMiller has a margin of 16.2 percent and Asahi's is 6.0
percent, according to Thomson Reuters data.
Analysts value the wine business between A$1.7 billion and
A$3.5 billion, based on a lower multiple of 10 times earnings.
The wine operations have a margin of 10.6 percent. The
company spent over A$6 billion building its wine business, the
world's second largest, with its acquisitions of California's
Beringer Wine Estates in 2000 and Australia's Southcorp in
Foster's has hired Gresham Advisory Partners to advise on
Fund managers were divided over whether a suitor would move
before the demerger or wait, with complex debt and structural
issues to be resolved.
Foster's shares, even after a 7 percent spike last week,
are little changed from the A$5.60 they were trading at before
the Southcorp deal, while the broader market is down 12
(editing by Dhara Ranasinghe)