Fosters: Australian for Takeover

Talk about taking a long time to drink a beer. In what was first rumored about as early as last summer, SABMiller has finally gotten what it wanted all along, buying Foster's Australia's largest brewer, for $10.15 billion in cash plus the assumption of debt and a special one-time cash dividend. Talks became serious again about three months ago, when it was first reported by Reuters that Molson Coors TAP and Modelo had approached Foster's. SABMIller ultimately bid on Foster's, but was initially rejected, as Foster's said the initial bid “significantly undervalued the company.” SABMiller is partially owned by Altria MO. According to sources, SABMiller will pay Foster's shareholders 5.120 Australian dollars per share ($5.21), in addition to a special dividend of 30 cents per share. The total deal is worth $11.72 billion, including the assumed debt. SABMiller CEO Graham Mackay said “Foster's will become an important part of our business, and through the application of our commercial capabilities and global scale, we expect to build on the initiatives that Foster's management has put in place, further enhancing Foster's performance and creating value for our shareholders.” This deal now makes SABMiller a much more formidable competitor to Anheuser-Busch InBev BUD, the world's largest brewer. After 2008, when Invbev bought Anheuser-Busch for a whopping $52 billion, SABMiller has been looking for ways to compete with Anheuser-Busch InBev and take market share away. With over $28 billion in annual revenues, SABMiller is firmly placing itself in a position to take on Anheuser-Busch InBev in a head-to-head battle. SABMiller has Miller Genuine Draft, Miller Lite, Peroni and Pilsner Urquell under its house, and it now gives the company the rights Foster's Lager and Victoria Bitter beer. Analysts saw the deal as a strategic fit since SABMiller already owns the Indian and North American distributing rights to Foster's. SABMiller is no stranger to deals of this size. In 2007, it formed a joint venture with MolsonCoors TAP to compete against Anheuser-Busch. The MillerCoors joint venture has such brands as Miller Genuine Draft, Molson Canadian, Coors and Blue Moon. This is one merger that screams bottoms up. ACTION ITEMS:

Bullish:
Traders who believe that more mergers will occur in this space might want to consider the following trades:

• MolsonCoors could also be a candidate for a take out, as it has a smaller market cap than Foster's, at $7.8 billion.

• Modelo's could also be considered by one of the larger brewers.

Bearish:
Traders who believe that more mergers will take place may consider alternate positions:

• This could be negative for craft brewers like Boston Beer SAM. Either their independence is gone and they are acquired, or they could lose market share to the larger brewers.
  
  

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