Foster's 'unaware' of takeover bids

Foster's shares tumbled yesterday after it said it was unaware of any takeover proposals.

Shares in the group surged to a record high on Tuesday on an unsourced media report that InBev, the world's largest brewer by volume, and second-ranked SABMiller were thought to be looking at the Australian company, which is valued around A$12 billion ($14.41 billion).

Analysts did not rule out a takeover but said the chances of an offer from SABMiller or InBev were low.

Macquarie Equities said both had the capacity to buy Foster's, but neither had shown an attraction to wine.

"The Australian beer market is relatively small and mature on a global comparison, while Foster's global reach is limited by its recent divestments and complicated incumbent distribution agreements," Macquarie said in a research report.

Foster's shares closed at A$5.95 after gaining 9.2 per cent to trade as high as A$6.12 on Tuesday.

"The company is not aware of any proposals which may lead to a takeover, and no approaches to that end have been made," Foster's said.

Deutsche Bank also said corporate activity was unlikely because of Foster's valuation and the timing.

It said Foster's had a 2007 earnings before interest, tax, depreciation and amortisation multiple of 10.8, compared with an average for five European brewers of 7.1.

Foster's has more than a 50 per cent share of the Australian beer market, where it mainly competes with Lion Nathan, which is 46 per cent owned by Japan's Kirin Brewery.

But it has scaled back its international beer operations, raising more than $A1 billion from the sale of the Foster's brand in Europe and India and the sale of Asian breweries.

SABMiller, which already holds the Foster's brand licence in the United States, this month bought Foster's India business.

The UK-based brewer also said this month it was entering a venture with soft drinks company Coca-Cola Amatil to sell and distribute imported premium beer in Australia.

The Foster's wine business is the second-largest after Constellation Brands and includes the Beringer, Wolf Blass, Penfolds, Rosemount Estate and Lindemans brands.

An acquisition could involve spinning off the wine business, which has battled a grape oversupply and competitive markets.

Foster's is pursuing efficiencies from its 2005 $A3.2 billion purchase of Australian wine company Southcorp and is integrating its beer and wine operations along regional lines.

Potential wine buyers could include Constellation, already a dominant player in Australia; Diageo Plc, which is cautious about wine acquisitions; Pernod Ricard, owner of the Jacob's Creek brand, or private equity.

UBS said in a research report that a sale of Foster's wine unit was not clear cut as the wine and beer businesses were already integrated in Australia, and there may be competition issues for Constellation or Pernod.

It might also be difficult to get a purchase to stack up, given the full price Foster's paid for its wine assets.

Recent takeover talk in the Australian market has focused more on private equity firms, which have targeted underperforming businesses, especially in the retail sector.

Analysts said the wine unit offered turnaround potential, given the depressed wine cycle, but Foster's was generally considered well managed, was not under-geared and the company overall had already sold a number of assets.

The company said its net profit for the year ended June 30 rose 15 per cent to $A623.1 million.

- REUTERS