The world's second largest brewer SABMiller Plc (LON.SAB) and smaller Japanese rival Asahi Breweries Ltd (TYO.2502) are reportedly planning to acquire Australia's biggest brewer Foster's Group's (ASX.FGL) beer operations for about £7 billion ($10 billion) but are yet to make a formal offer.
According to the Sunday Times, which first broke the news, the London-listed SABMiller is planning to buy Carlton & United Breweries, the beer making unit of Foster's. However, a bidding war is expected to erupt as Japan's No.2 brewer Asahi Breweries could also make an offer. China's China’s Bright Food Group Co. and Tsingtao Brewery Co. and Canada's Molson Coors could also join the bidding fray.
Carlton & United Breweries is an attractive buy because it has a profit margin of 38.5 percent. Without the unit, which generates around 85 percent of Foster's earnings, Foster's will become a much smaller company.
According to market analysts, it is likely that SABMiller will end up acquiring Carlton & United Breweries because it will help the maker of beer brands such as Peroni, Pilsner Urquell and Miller Lite, which already gets about 85 percent of its profit from the emerging markets of Latin America, Africa and Asia, expand its business further and put it in a position to reclaim the title from Anheuser-Busch InBev as the world's largest brewer.
InBev, which owns beer brands such as Budweiser and Stella Artois, bought Anheuser-Busch for $52 billion in 2008, helping the new entity vault past SABMiller as the world's largest beer maker. In 2009, SAB Miller reported a profit of $2.16 billion on revenue of $18.7 billion while Anheuser-Busch InBev reported a profit of $4.6 billion on almost $37 billion in revenue.
SABMiller is expected to buy the company before Foster's goes ahead with its plan of splitting the unit from its struggling wine business next year.
According to Sanford C. Bernstein analyst Trevor Stirling, Foster's is "well within SAB's firepower."
Agrees Arnhem Investment Management analyst Theo Mass, SABMiller is the "most logical bidder" and "seven billion pounds would be a good opening statement if there is a bid."
However, Asahi could pose a threat, analysts said. The Japanese brewer, which is looking to expand and diversify beyond the local beer market, announced earlier this month that it is planning to set aside $9.2 billion for acquisitions over the next five years, with eyes on Asia and Oceania.
Shares of Foster's closed up 7.56 percent at A$6.26 on the Australian Stock Exchange following reports of the potential bids. Shares of SABMiller, which already owns Foster's brand in India and hold the US brewing rights, were trading up 0.54 percent at 1861 pence on the London Stock Exchange at 2.39PM (BST). Asahi's shares closed up 0.62 percent at 1629 on the Tokyo Stock Exchange.
Any deal looks likely to make August not only the biggest deal making month of 2010 but also put it on course to beat its own record of $260 billion set in 2006. According to Dealogic, global M&A volume in August so far is $172.7 billion, of which $87.1 billion worth of deals were announced last week.
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