The backdrop:
SABMiller’s failed bid of acquiring Fosters in a deal that valued it at 10 billion USD. The deal was rejected by the Fosters’ board on grounds that it severely undervalued the firm.
About the Firms:
SABMiller: The largest beer manufacturer in the world, it has presence in 75 countries with over 200 brands and 70,000 employees. It’s major market lies in US, South Africa, Europe and North America and the brand “Castle Lager” is in its portfolio.
Fosters: The largest player in the Australian beer market with close to 50% market share and a number of successful brands in its portfolio.
About the offer:
SABMiller made a tender offer of AUD 4.90( USD 5.18) a share on June 20,2011which was rejected by the board.
The Analysis:
There are certain parameters to consider here in order to understand the decision behind SABMiller’s move:
- Fosters does not have a controlling family shareholder, which makes it easier for SABMiller to acquire it.
- Fosters’ strong brand equity will be a prize catch for SABMiller’s portfolio of products , thus further enhancing its market leadership as the second largest manufacturer
- The acquisition bid is particularly significant as it will give SABMiller control of 46% of the Australian beer market (Fosters’ share) in which SABMiller’s share is 1.8%
- The deal is directed at the booming and growing Austrailian economy
- The deal will provide Fosters the opportunity to further consolidate its position with the help of expertise from SABMiller
On the flip side of the deal are the various reasons:
- The international rights for Fosters are already sold
- There are lot of bidders in the race including Molson Coors Brewing Co. of US,Grupo Modelo SAB de CV of Mexico, Asahi Breweries of Japan and Anheur Busch InBev the world’s largest beer maker which is bound to shoot up the share prices in the run up to the bid.
- Fosters has been facing tougher competition off late in the Austrailian market from smaller niche players
Though the initial bid of 5.18 USD has been rejected by Fosters , the market reaction has been positive so far. So while the acquisition bid by SABMiller might not succeed even in future, Foster looks highly likely to be acquired by at a higher price which might be in the range of 5.40-5.50 USD per share in a deal that could be worth as high as 11 billion USD !
Tags: fosters sabmillerYou might like reading:
How does discount strategy work in hyper competitive markets?
In a hyper competitive market where the basic feature of almost all the products is the same, the focus inevitably shifts to price. Price is an important vehicle for capturing customers from the rival product’s consumer base. It also becomes an important source for penetration of new segments. A consistent and sustained marketing on price inevitably generates expressions from consumers […]
Rethinking Dashboard Governance – the future of IT organizations
The increasing realization gaps and performance gaps across IT organizations is taking attrition levels to new highs. Also these gaps are wrongly decoded and IT governance has confined itself to technological advances rather than restructuring the organizations; which has remained a myth of late. Today IT organizations require enterprise-wide change in order to effectively align them with businesses and profit […]
