Drinking contest

SABMiller/Foster’s: SABMiller has made a canny move. The UK-listed brewer has taken its offer for Foster’s Group directly to shareholders, three months after its Australian target spurned an approach valuing its shares at $10 billion. There’s no counterbidder in sight, and going hostile now means Foster’s will have to unveil results next week from a position of defensiveness. But, peace may yet break out. Hostile takeovers are hard Down Under, and some sweetener could bring both sides together. Foster’s shares spiked after SAB’s initial approach, but fell when alternatives failed to materialise.

Now, just a few cents above the A$4.90 bid price, the market seems to expect a slightly improved bid. Full-year earnings on August 23 — the first since Foster’s hived off its wine business in May — may not help much: updates from smaller rival Lion Nathan and bottle-maker Owens-Illinois attest to continued weakness in the Australian beer market. SAB looks disciplined by leaving its offer unchanged. With no other bid, doing otherwise might look reckless. Moreover, the brewer of Grolsch and Peroni has walked away from two sizeable deals in South America in as many years. That will soothe the nerves of shareholders, who sent SAB’s stock down when its initial approach was announced.

But, an agreed deal would still have value, which explains why SAB’s tone remains civil. A friendly deal would grant full access to Foster’s books. Moreover, Asian dealmakers complain it’s hard to get hostile deals completed in Australia, and that Antipodean investors have less leverage over boards than their US or UK counterparts. Small offer increases have proved sufficient in other big beer battles: an increase of less than 8 per cent clinched the merger that created AB InBev. Adding a similar kicker here would imply a deal at about A$5.30 a share. At that price, SAB could cover its capital cost in five years. Some sweetener may be enough to take away the bitterness of this drinking contest.