Fosters – Australia Loses Another Icon

By Jason Fittler

Shareholders look to take their money and wave good bye to Fosters as another iconic Australian brand goes offshore.

Despite being relatively mature, Australia's $14bn duopoly beer market derives fairly reliable earnings, in turn generating strong cash flows that underpin dividends. But market share losses and earnings weakness over recent years continuously left shareholders disappointed. The offer by SABMiller of $5.40 is a decent offer - and of course it removes execution risk, particularly given an uncertain economic environment and soft consumer confidence.

The offer represents an 18.7% premium to fair value. After a hostile takeover bid and complaint to The Takeovers Panel regarding FGL's outlook statement and pro-forma net debt classification, SABMiller has entered into a scheme implementation deed with FGL, after increasing its initial offer 12.9% to $5.5325. The offer comprises $5.10 cash, a 30c capital return and the 13.25c final dividend. The board recommends the offer.

The deal is subject to shareholder, court and regulatory approval.  Post the final dividend, we were looking for a bid around $5.45. This offer, just shy of that mark, is reasonable and we recommend shareholders accept the offer and approve the capital return.

FGL is Australia's leading brewer ahead of competitor Lion Nathan. Beer and wine assets were de-merged in May 2011 after years of failed attempts to integrate both into a single business. The portfolio includes well-known brands such as VB, Carlton, Pure Blonde and Crown. It operates in all key beer market segments. Other key competitive strengths are significant economies of scale and an extensive distribution network. Stable earnings and strong cash flows support ongoing brand reinvestment and dividends.

For more information on Fosters (FGL) please contact us on 07 4771 4577.