The amber nectar isn’t hard to swallow

Elizabeth Fournier
INVESTORS’ reaction to SABMiller’s rejected £6.2bn bid for Foster’s last week said it all – the brewer’s shares fell 3.6 per cent as Foster’s branded the bid as too low, while the target’s stock rocketed to a nine-month high, overtaking the offer and making a sweetened offer almost a necessity.

With a close-to 50 per cent market share in Australian domestic beer sales, there’s no doubt that Foster’s would bring a healthy revenue stream to SAB’s top line, but at first glance all the benefits seem in the target’s favour.

In particular, the move would be a diversion from SABMiller’s so-far successful forays into emerging markets – profit forecasts were beaten last month due to growth in Africa and Asia, which along with other developing economies provide more than 80 per cent of the group’s earnings.

But whatever the outcome, investors seem to be jumping the gun with their negative outlook. If SAB fails to acquire Fosters then it remains a debt-light company with an improving top line. And if the bid is ultimately successful, Foster’s looks like a hassle-free cash generator, even if the price has to be hiked slightly.

With clear intentions and shares trading close to their 12-month low, any risk related to Foster’s looks like it’s already been priced in.

We see little downside in buying now.