Foster's swallowed up in brewer
consolidation (Additional Insight)
Source: FT
By Louise Lucas
Sep 23rd
Foster's this week became the latest brewer to be gulped
down by a bigger rival when London-listed SABMiller paid A$10.8bn for the
Australian group's equity.
Brewers are big proponents of consolidation, despite the
more limited cost synergies than in other industries. Beer being a local
business, it is tougher to implement global distribution and marketing. As
heavy, bulky stuff, production of beer inevitably stays close to
consumers.
Despite this, the industry has spent around $150bn on
acquisitions in the past five years, led by Anheuser-Busch InBev, the biggest
fish in the sea - and, according to some analysts, just waiting to swallow
SABMiller.
But the world's second-biggest brewer by volumes becomes
that bit more of a stretch following the takeover of Foster's, which remains
subject to regulatory approvals.
The deal is priced at an enterprise value of $11.5bn on
SABMiller's calculations. Foster's calculation, including other payments such as
a windfall refund payment that will be distributed to shareholders, totals
$12.3bn. Either way, it was not cheap.
Trevor Stirling, at Bernstein Research says it works out
at a "pretty pricey" 13.2 times last year's earnings before tax, depreciation
and amortisation on SABMiller's enterprise value - ahead of similar
deals.
Analysts have two cavils with the deal. It is harder to
improve Foster's already world-beating operating profit margins and the deal
dilutes SABMiller's 80 per cent-plus exposure to fast-growing emerging
markets.
Graham Mackay, chief executive, points out the group will
still derive some 70 per cent of sales from emerging markets. On profitability,
the brewer can and will do what needs to be done "to make the numbers work," he
says.
