Bloomberg News

SABMiller Chief Clinched Foster’s Bid Without Australia Trip

September 22, 2011

(Updates with SABMiller shares in 11th paragraph.)

Sept. 22 (Bloomberg) -- SABMiller Plc Chief Executive Officer Graham Mackay managed to snare the biggest Australian brewer without setting foot in the country.

Following a three-month pursuit that turned hostile, Mackay met Foster’s Group Ltd. Chairman David Crawford at a conference in Istanbul last week, two people with direct knowledge of the negotiations said. The meeting came after Foster’s approached its suitor following indications from some of its largest investors that they’d accept a higher bid, one of the people said, declining to be identified because the talks were private.

Crawford and his board had rebuffed Mackay since June, when the London-based company offered A$4.90 a share to buy the maker of Victoria Bitter. Foster’s agreed yesterday to be bought for A$5.10 a share, or about A$9.9 billion ($9.93 billion), in cash, driving the stock 7.6 percent higher today. The purchase is SABMiller’s biggest and will boost earnings per share in the first full year of ownership, the company said yesterday.

“A couple of weeks ago, it became obvious our positions weren’t irreconcilably far apart,” Mackay said in an interview with Bloomberg Television, referring to the offer price. “We’ve thought for a while that this was an attractive deal at the right price.”

Andrew Butcher, a spokesman for Foster’s external media adviser Butcher & Co. in Melbourne, declined to comment on the negotiations, as did SABMiller’s Nigel Fairbrass.

Due Diligence

After the executives hammered out broad lines of the deal, SABMiller did due diligence on the assets, the people said. A final deal was reached about an hour before the purchase was announced after the close of Australian trading yesterday.

Advisers to Melbourne-based Foster’s approached SABMiller after the U.K. maker of Grolsch had said it would take its offer directly to shareholders. Before SABMiller could file its formal bidding document to finalize the hostile offer, Foster’s asked it to put its final bid forward, the people said.

Foster’s said the total agreed offer is worth A$5.5325 a share to investors, after including a payment of 30 cents a share as part of a capital return and a 13.25-cent final dividend as a result of the talks.

The 30-cent payment is conditional on Australia’s tax office ruling it as a capital return to investors and not a dividend. If that can’t be achieved, SABMiller will increase its bid to A$5.40 in cash, according to Foster’s.

‘Full Price’

“This represents a full price and is a very favorable outcome for Foster’s shareholders,” Andy Bowley, an analyst at Citigroup Inc., said in a note today. “Given the full price and lack of apparent action from other potential suitors, the probability of a counter-bid at this stage is low.”

Foster’s rose 37 cents to A$5.26, the biggest percentage gain since first disclosing SABMiller’s approach on June 21. SABMiller fell as much as 124 pence, or 5.7 percent, to 2,061 pence in London trading as European stock markets tumbled.

“The market is treating this as a bid worth A$5.40, but there is a discount being taken as it’s going to take a few months to get the money,” said Theo Maas, who helps manage $5.4 billion at Arnhem Investment Management in Sydney. “There is hardly any uncertainty about this deal not being done.”

Mackay, 62, has built SABMiller from a South African brewer to the world’s second-biggest by volume by making acquisitions from Colombia to Poland and India. The company has a higher exposure to emerging markets than rival beermakers, making a purchase of an asset in a developed country more appealing.

Rating Review

SABMiller said it has internal resources and committed financing to fund the takeover and expects to maintain a “strong” investment-grade credit profile. The brewer hired banks to raise $12.5 billion of loans for the bid, a person with knowledge of the deal said last month.

Foster’s had its BBB long-term corporate credit rating placed on review for a possible upgrade with SABMiller’s debt rated one notch higher at BBB+, Standard & Poor’s said in a statement today. Moody’s Investors Service also flagged a potential upgrade to Foster’s debt.

SABMiller has retained JPMorgan Chase & Co., Moelis & Co., Royal Bank of Scotland Group Plc and Morgan Stanley as financial advisers and Allen & Overy and Hogan Lovells International LLP as legal advisers, the U.K. brewer said. Foster’s was advised by Goldman Sachs Group Inc. and Gresham.

Foster’s resisted SABMiller’s initial offer, rejecting it as too low and instead focused on Chief Executive Officer John Pollaers’ plan to return cash to investors and reverse market share losses and falling earnings.

“A combination of a very weak consumer, soft beer market and volatile equity markets have likely increased the attractiveness of the offer,” Paul Van Meurs, an analyst at Deutsche Bank AG, said in a note to clients today.

Pollaers called Mackay on Sept. 20 to pledge a smooth transition, one of the people said. He declined to say if he would stay with the company once the deal is complete, when asked on a conference call yesterday.

--With assistance from Francine Lacqua in London and Matthew Campbell in New York. Editors: Celeste Perri, Frank Longid

To contact the reporters on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net; Robert Fenner in Melbourne at rfenner@bloomberg.net; Brett Foley in London at bfoley8@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net; Celeste Perri at cperri@bloomberg.net


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