Rumours swirl of interest in Foster’s as consolidation continues

Posted by Daniel Palmer on 1st October 2009

Speculation is mounting that Australia’s largest brewer could be the next takeover target as mass consolidation takes place in the global beverage sector.

Foster’s has long been touted as a likely target of global brewers like SABMiller and Asahi but despite all the rumours a bid has yet to eventuate – largely due to the influence of their wine division. However, a report in Business Spectator this morning claims a “deal is imminent”.

Consolidation

The alcoholic beverage sector has not been short of M&A activity over the past year and a half, with major deals occurring in Japan, the UK, Australia and the US. The largest plays include the purchase of Scottish & Newcastle by Heineken and Carlsberg, the North American tie-up of SABMiller and Molson Coors, InBev’s US$52b purchase of Anheuser Busch, Kirin’s acquisition of Lion Nathan (almost complete) and an anticipated merger of Kirin and Suntory. That’s a lot of action during a global recession and has analysts confident there is more to come.

Beyond the alcoholic beverage sector we shouldn’t forget how alluring the general beverage market has been in our region, with deals for National Foods, Frucor, Schweppes Australia and cordial maker Golden Circle in the past two years.

Foster’s next?

The beer division of Foster’s has always been an attractive target and, as consolidation continues in the sector, many are willing to point to Foster’s as the next likely target. It is widely believed that an offer has only not been forthcoming to date due to the underperforming wine assets held by the firm.

Molson Coors, SABMiller and Asahi have been listed as the leading candidates, although the latter would appear the most likely if an offer was to be forthcoming.

Japanese beverage companies have signalled their intent to expand through overseas acquisitions and Asahi has watched as Kirin claims a large slice of the Australian alcoholic beverage market with their Lion Nathan purchase, while they are also contemplating the impact of an even stronger local rival as Kirin announces plans to join forces with Suntory. Asahi has already made a significant entry into Australia via the purchase of Schweppes this year and they must have at least looked at the prospect of a move for Foster’s.

Molson Coors, meanwhile, acquired a strategic five per cent stake in Foster’s last year through Deutsche Bank but sold out in May. While SABMiller already has an interest in the Australian beer market through an alliance with Coca-Cola Amatil but do have links to the company through licences to the Foster’s brand in India and the US.

The current low cost of credit makes a deal in the near future more attractive to potential suitors but the spectre of the wine assets still looms large. Foster’s recently started their sale of winery assets but have consistently refused to entertain the idea of a divestment of all wine assets – which would probably be a precondition of any deal. The Business Spectator report indicated that if the speculation of an imminent deal is true then this week’s sale of the Cumbandry vineyard could be the beginning of a complete sale of the assets they acquired from Southcorp four years ago. It would also explain the unexpected resignation of their global marketing boss this week, who was reportedly in charge of a project to improve the image of Australian wine overseas.