By Andrew Starke
With most commentators considering the initial offer fair, shares in Foster’s soared on the news yesterday from an opening quote of $4.53 to $5.14 at close as investors anticipated a revamped offer of between $5.25 and $5.50 from SABMiller.
The giant brewer’s initial proposal of $4.90 per share was rejected with speculation today suggesting the Foster’s board is holding out for a figure close to $6 per share.
Macquarie Equities Research analyst, Rob Blythe, said the proposed acquisition was ‘curious’ as it seems financial goals may not be sole reason for the transaction but rather volume.
”SABMiller has offered a huge price for Foster’s when our estimated revenue and EBIT growth is considered,” he said.
”While historic multiples could justify a higher price they don’t provide any insight into growth expectations at the time of peer transactions.”
While SABMiller has acknowledged that the Australian market is not a volume growth opportunity but rather one in which it can create value through better trade and consumer marketing, the most obvious precedent remains Kirin’s acquisition of Lion Nathan in 2009.
”When examining how much SABMiller might pay for Foster’s, we can apply the recent transaction multiple of Kirin buying out the remaining share in Lion Nathan completed at 13.2 times EV/EBITDA which would imply an offer of $5.35 per share.,” said Blythe.
“In the extremely unlikely event that the top end historic transaction multiple of 15x EV/EBITDA (which InBev paid for Anheuser-Busch in 2008) were to be applied this would imply (a price) of $6.15 per share.”
In 2002 South African Breweries acquired the Miller Brewing Company and renamed the business SABMiller.
It has long been considered the favourite to make a bid for Foster’s with global rivals like Anheuser-Busch InBev, Heineken International, Molson Coors, Asahi and Modelo unwilling or unable to match the likely selling price.