Foster’s defence: SABMiller’s unsolicited tilt at Foster’s puts the Australian brewer in a tight spot. The obvious defence strategy would be to persuade a friendly rival to top the approach, pitched at $11.8 billion including debt. But that won’t be a cinch. A credible standalone defence looks a better bet to extract a better offer, and even that might not preserve Foster’s independence. The mooted “white knights” aren’t terribly credible. European brewers Carlsberg and Heineken are both big enough to buy Foster’s, but have set their sights on more racy markets.
Heineken only recently downed Mexico’s FEMSA. As a chaser, it would be better to target an emerging market brewer like Schincariol, the number two in Brazil. True, the Japanese brewers look acquisitive. Asahi and privately-listed Suntory watched rival Kirin absorb Foster’s chief rival, Lion Nathan, in 2009. They are cash-rich, have access to cheap debt and know the nearby Australian market well. Yet, it’s not clear that two low-growth, insular markets are much better than one. There’s no banking on interest from the Americas either. Mexico’s Modelo may be tempted, but it would need the say-so of 50 per cent shareholder AB Inbev.
That, in turn, might make Modelo more expensive for the US giant to swallow. Still, a joint bid could make more sense — and even if SAB ultimately wins an auction, they would have prevented a rival from getting a bargain. That means Foster’s most reliable defence is to talk up its hidden standalone value and slam SAB’s offer as opportunistic. It is barely a month since Foster’s sloughed off its troublesome wine business. New chief John Pollaers hasn’t yet had the chance to shake things up and remedy Foster’s overreliance on the slowest-growing parts of the market.
SAB’s offer is priced at an enterprise multiple of almost 11 times forward Ebitda. That looks robust. But a clear plan to increase margins and liven revenues should be Pollaers’ first step. He could also focus on tightening Foster’s balance-sheet beer gut: increasing net debt to an unchallenging three times Ebitda could release $1.2 billion of cash for shareholders. Cracking high-growth segments without an injection of SAB-style premium brands will be expensive and slow. But in the name of at least getting a higher price from its suitor, a home-brewed defence is rapidly needed.