Foster’s froth makes me bubbly
by Peter Switzer
The near-$10 billion bid for Foster’s reminds me of a lesson Rene Rivkin once taught me. And it underlines why I am cautiously positive about the advancement of the stock market and our economic future.
This takeover offer for Foster’s has been a long time coming. It means our iconic Foster’s, VB and Crown Lager brands would be owned by the South African brewer SABMiller.
The offer of $4.90 was well received by the market with the share price spiking to $5.14 — that was a 13 per cent rise — but Foster’s rejected the bid.
More to come?
But that’s not the end of the story and this is where Rene’s advice comes in.
He told me years ago that you can often make money by buying into a takeover target. He argued the first offer price is seldom the last and so by getting in you could make money out of the horse-trading that usually follows.
That’s why the share price went up 13 per cent despite the rejection by Foster’s. The experts think the offer will have to be around $5.20 before the deal goes through.
Meanwhile, the proposed offer has a big impact on Coca Cola Amatil (CCA), which has a joint venture partnership with SABMiller to sell beers such as Peroni, Pilsner and Blue Tongue.
Under their joint venture agreement, SABMiller can buy Foster’s and take over the joint venture and CCA will pocket between $305-$380 million! That’s a nice result, as CCA only values their share in the arrangement at $95 million and that’s why its share price went up 1.24 per cent yesterday.
The challenge for CCA’s boss, Terry Davis, is to chart a new growth path without beer. Under the deal, CCA has to get out of beer for two years.
Of course, overall this is a nice result for shareholders who have been with Foster’s, which has struggled for decades, but it’s sad to see another wonderful Aussie brand being sold off to foreign raiders.
It’s bad enough to drive a lot of blokes to the drink.
Finally, the Greeks have voted and their PM got the vote of confidence that was expected and this has helped the stock market up on Wall Street overnight. The next hurdle will be US central bank boss, Ben Bernanke, who speaks tomorrow and what he says about the US recovery could make or break this current rally.
The Dow was up 109.63 points to 12,190.01 and the Oz dollar liked the better Greek news — it was up to 105.96 US cents. All eyes and ears turn to Helicopter Ben.
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Published on: Wednesday, June 22, 2011
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