No deal any time soon for Fosters beer arm

Speculation has been rife in recent days that brewing giant SAB Miller is weighing up an offer for the beer arm of Foster’s, but the reality is that any deal would be dependant on Foster’s first completing the demerger of its wine and beer operations.

Reports suggest SAB Miller is considering an offer in the region of £7 billion for the beer side of Foster’s, with the Australian firm having already announced formal plans to pursue a demerger of its wine and beer divisions.

It is perfectly understandable that the money men at SAB Miller are pouring over the Foster’s beer figures, with the £7bn price tag reached because it represents the same multiple of 12.5 times earnings which rival Australian brewer Lion Nathan was sold for last year.

However, with Foster’s unlikely to complete the demerger of its two operations until the early part of 2011 at the earliest, there will be very little movement on any deal in the near future.

That hasn’t stopped shares in Foster’s jumping to their highest price in two years upon news of the potential bid – up to £3.60 at the start of this week.

SAB Miller is unlikely to be drawn into a bidding war, however. It recently baulked at out-bidding Heineken for FEMSA Cerveza, with Heineken eventually paying 11.4 times the earnings of the company.

Should another bidder enter the fray with an offer around 12.5 times the earnings of the Foster’s beer division, SAB Miller would not be expected to enter into a battle.

Meanwhile Foster’s this week posted a second-half loss of AU$820.1 million in the six months to the end of June this year, compared with net income of AUD$27m at the same point last year. The figures came after a AUD$1.2bn writedown on its wine division.

Treasury Wine Estates, the recently-rebranded wine arm at Foster’s, posted a 27% drop in annual earnings to AUD$221.1m as gains in the Australian dollar wiped out AUD$123m in profit.

Alan Lodge, 25.08.2010