The market seems to be pricing in a price of around $5.20 to $5.35, according to some reports.
But if the Foster’s shares gradually fall back towards $5.00 in the next week, then SABMiller might find the second offer won’t be that expensive.
“SABMiller has historically been an acquisitive company with a good track record at integrating purchased assets,” Yasmina Serghini-Douvin and Maurice O’Connell, Moody’s analysts, wrote in the report.
“If the acquisition proceeds, it would be credit positive for both companies with expected benefits in terms of diversification, scale and cost savings.”
Moody’s rates Foster’s Baa2, two levels above junk status. SABMiller is rated one level higher at Baa1.
Analysts point out that the SABMiller offer doesn’t appear to fully price in the tax win Foster’s had recently.
The total value windfall is about $750 million in refunds and tax losses available to set against profits and in its takeover sums SABMiller has only recognised the first $256.7 million.
That can be used to boost the offer, or Foster’s itself could use them for a capital return and/or higher dividend plus a special one-off payment to existing shareholders, if the bid has to be properly defended.
David Errington, the noted Australian analyst at Bank of America/Merrill Lynch in Sydney has written that SABMiller could get up to $330 million in savings from Foster’s after a takeover.
With that amount, and the unaccounted tax loss and refunds, SABMiller could extract $600 million or more from Foster’s after a takeover.
That’s around 7.5% of the current $9.5 billion value of the offer.
Merrill’s London office reckons the downside in the SABMiller share price is now low because the perceived risks in the Fosters buy are in the share price via an 8% fall since the bid was revealed at the start of last week.
The comments pushed the SAB price up 3% in London on Monday.
“The market clearly signalled that it does not like the proposed purchase of Foster’s and we believe the risks are largely discounted in the share price,” said Merrill Lynch, which added SAB shares to its “buy” list.
“If the deal concludes, it will be more than 5 per cent accretive [to earnings], and if it does not go ahead, the market will be relieved.”
Merrill said SAB could run Foster’s better than existing management, partly by taking unpopular decisions such as closing the company’s landmark brewery at Abbotsford in central Melbourne.
Costs at Foster’s are double the average of brewers and at least 10% higher than local peer Lion Nathan, which is owned by Kirin of Japan.
