MELBOURNE Australian brewer Foster's FGL.AX rejected a $10 billion offer from rival SABMiller SAB.L for the second time as shareholders hold out for a better offer from the global brewing giant.
SABMiller announced on Wednesday it would go directly to shareholders to gain about half of Australia's beer market, with a repeated offer of A$4.90 a share.
Foster's on Thursday said the offer significantly undervalues the company. Shares in the brewer, which is expected to report flagging profits on Tuesday, rose as high as A$5.03 on Thursday before closing at A$5.00.
"They are doing the right thing. They probably will get a better price sometime down the track and this strategy is probably the right one," said Craig Young, portfolio manager at Tyndall Investment Management, which owns Foster's shares.
"The market thinks that a better price will be forthcoming. It expects something above A$5 and decently above A$5. So you're talking A$5.10, A$5.20, maybe even as high as A$5.30," he said.
The stock has gone as high as A$5.25 since SABMiller's first offer in June.
NO RIVAL BIDDERS SEEN
SABMiller, which makes Peroni, Grolsch and Miller Lite, has long been seen as the favorite to take over Foster's since rivals such as Heineken (HEIN.AS) are struggling with debt or lack adequate funding.
Foster's boasts high margins and a dominant position in Australia, although beer volumes have sagged recently with a poor summer and consumer downturn.
SABMiller could have strengthened its hand by waiting longer to make a direct offer in the absence of a rival, shareholders said, signaling an improved bid may emerge.
So far, there has been no sign another party was seriously interested in bidding for Foster's, analysts and three sources familiar with the transaction said on Tuesday.
"It doesn't look like there is anyone at all else out there to buy it. It certainly looks like they want the deal done fairly quickly so I would have thought a better price will be forthcoming," said Young.
Other analysts said Foster's could have trouble defending the bid.
"In order to defend the bid successfully, Fosters needs to show the market its estimates for earnings are too low, thus making the multiple implied by SABMiller unreasonable," City Index analyst Peter Esho said.
"We note SABMiller has a reasonable understanding of the domestic beer market through its alcohol joint venture with Coca Cola Amatil. It's no stranger to market conditions," he added.
World brewers, juggling rising raw materials prices and slowing growth in mature markets, are seeking growth elsewhere and a number of smaller brewers are expected to be swallowed up.
On Thursday, Asahi Group Holdings (2502.T) said it will buy New Zealand beverage group Independent Liquor for 97.6 billion yen ($1.27 billion), as the Japanese brewer rushes to develop profit growth drivers outside its shrinking home market.
At a press briefing in Tokyo, Asahi President Naoki Izumiya told reporters that he while he was watching deal negotiations from the sidelines, he has had no direct talks with Foster's. He also reiterated that he thought the price was too expensive.
Foster's, which has refused to engage in talks with its suitor, said after its board met early on Thursday morning that the latest offer "significantly undervalues" the company.
"It probably puts a bit more pressure on Foster's management because they are certainly going to get questioned a lot harder on...their strategy and why they see value well above A$4.90," said Jason Beddow, chief executive at Foster's shareholder, ARGO Investments. He added that he would not take the offer "at this stage."
The cash offer, which will be reduced by any second-half dividend paid by Foster's, requires 90 percent acceptance by shareholders.
While hedge funds holding stock in Foster's have been calling SABMiller's advisers, formal discussions with Foster's shareholders are not expected to start until after a bidder's statement is lodged, sources said.
This is unlikely until at least after Foster's releases its full-year earnings on Tuesday. The brewer's advisors on the deal are Goldman Sachs, Gresham and Allens Arthur Robinson.
JPMorgan, Moelis & Co, RBS, and Morgan Stanley are advising SABMiller.
($1 = 0.953 Australian dollars)
(Additional reporting Michael Smith in SYDNEY and James Topham in TOKYO; Editing by Balazs Koranyi and Lincoln Feast)