Foster's fights off bid with investor cash offer

Foster's Group, Australia's biggest brewer, will return at least A$500 million ($631 million) to investors as it resists SABMiller's hostile takeover bid.

The return may include a capital reduction or share buyback and will be done this financial year subject to market conditions, Melbourne-based Foster's said.

The company yesterday posted a net loss of A$89 million in the 12 months ended June on charges from its former wine unit.

Buying back stock may help retain shareholder support as chief executive John Pollaers tries to revive earnings, including using A$55 million of cost reductions on brand promotion and international sales.

The Foster's board says SABMiller's A$9.5 billion offer is too low and comes after natural disasters and stalling Australian consumer spending hurt demand and narrowed margins.

The plan "buys Foster's management more time and gives them options to do more", said Chris Weston, an institutional dealer at IG Markets in Melbourne. "There had been expectations they would do a A$1 billion buyback."

The company is targeting "mid single digit" sales growth in the current year with earnings before interest and tax to rise more than revenue.

London-based SABMiller said on August 17 that it would cut its offer by any dividends paid out. Foster's yesterday said it would pay a second-half dividend of A13.25c.

Pollaers has been boss of Foster's since it completed the spinoff of Treasury Wine Estates, in May, ending a 15-year involvement in wine that cost more than A$8 billion to build and resulted in about A$3 billion of writedowns.

The company's net loss reported yesterday, included A$1.2 billion of losses related to the wine assets.

Excluding items, profit for the year was A$495 million, compared with the A$494 million median estimate of three analysts surveyed by Bloomberg News.

Earnings before interest and tax from Australian brewing fell 6.2 per cent to A$847.8 million, the company said.

Foster's share of the Australian beer market has fallen to less than 50 per cent from about 55 per cent in 2005, as consumers shifted to craft brews and pre-mixed spirit drinks. The slide has eased and the company is holding at the same level as a year ago, it said.

January's flooding in two of Australia's three most popular states crimped sales and lowered profitability at the domestic beer business for the first time in a decade.

The company is cutting 145 jobs across its business and will review its "asset footprint", which should be concluded within six months, Foster's said yesterday.

The company's beer operating profit margin, or earnings before interest and tax as a proportion of sales, fell to 38.0 per cent compared with 38.7 per cent a year earlier.

That's higher than the 23.5 per cent of SABMiller in the year ended March and 30.8 per cent at Anheuser-Busch InBev, the world's biggest brewer, in the year ended December, according to data compiled by Bloomberg.

The Foster's board has declined to enter talks with SABMiller prompting it to take its offer straight to shareholders, which it did on August 17.

The takeover offer from the maker of Miller Lite and Grolsch will have to rise by about 6 per cent to A$5.20 to succeed, according to the median estimate of 13 analysts.

- Bloomberg