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Following the rejection of its initial proposal in June, SABMiller has reached agreement to buy Foster’s Group for A$5.1 per share in cash, valuing the business at A$12.3bn (US$12.6bn), including debt.
Foster’s sales are focused on its domestic Australian market and offers limited global scale, only registering 0.5% volume share in 2010. The acquisition will still, however strengthen SABMiller’s position as the second largest global brewer by volume and increase its exposure to high-margin mature markets.
Although the demerger of Foster’s Group beer and wine operations was thought to encourage takeover offers for the company, SABMiller emerged as the only candidate interested in the Australian brewer. Since the initial offer in June, Foster’s share price has wobbled following disappointing annual results, which seem to have changed the opinion of the board and SABMiller’s new increased A$5.1 per share offer was sufficient to close the deal.
SABMiller is much less exposed to developed markets than other global brewers. According to Euromonitor International data, only 26% of its total volumes were generated in North America, Western Europe and Australasia in 2010. Since the company already has a strong position in fast-growing emerging markets, notably Africa and Latin America, it was looking for expansion possibilities in high-value mature markets to enhance its profitability.
The demerger of Foster’s Group opened up a possibility for SABMiller to strengthen its position in Australia, where the company has registered double-digit growth in the past five years, benefiting from the growing popularity of premium lagers. The Australian beer market does not offer strong volume growth possibilities, as per capita beer consumption has been falling in recent years, and beer volumes are expected to decline further at a 1% CAGR over 2011-2016. The premiumisation trend, however is expected to continue, offering value growth for the company.
Foster’s domestic beer arm, Carlton United Brewers (CUB) had more than 45% volume share in 2010 in the Australian beer market, thus it offers a well-established distribution network for SABMiller. Besides its solid position, SABMiller can also benefit from Foster’s strong profitability and cash generation. In addition, Foster’s is the leading player in cider/perry in Australia, which is still a niche segment, but the category showed strong growth in the past five years and is expected to grow further at a 21% volume CAGR over 2011-2016.
SABMiller has experience in large scale acquisitions and should be able to leverage its global brands through CUB’s distribution network. Furthermore due to its global scale, SABMiller expects to enhance Foster’s profitability and realize cost savings. Growth potential in Australia though remains limited, for SABMiller, however this was less of an issue than for other global players given its already large exposure to fast growing emerging markets. Instead it saw an opportunity to increase its scale and profitability in a highly consolidated market. The deal is expected to be completed by the end of 2011.