Foster's to return A$500m to investors in bid to repel SAB

Foster's, the biggest brewer in Australia, bolstered its defences yesterday against the A$9.5bn (£6bn) hostile bid by its rival SABMiller by promising to return at least A$500m to shareholders this financial year.

The group also said that investors accounting for more than a quarter of its shares supported its rejection of the takeover approach by SABMiller, which is listed on the London and Johannesburg stock exchanges. But the defiant tone struck by John Pollaers, the chief executive of Foster's, came as the group posted a fall in full-year pre-tax profits and revenues, dragged down by falling Australian beer volumes and higher corporate costs.

SABMiller, whose beer brands include Peroni, Grolsch and Miller Lite, first made its A$4.90 all-cash bid for Foster's in June and then went hostile last week by taking its offer direct to shareholders. The bid is conditional on 90 per cent acceptance by investors.

But Mr Pollaers said that shareholders understand the offer "fundamentally undervalues the company".

He explained it's "a long way off", but said that Foster's would speak to SABMiller if it made a "sensible offer". He did not indicate a price.

Indeed, the market seems to agree that an improved offer from SABMiller may be forthcoming as shares in Foster's closed above the offer price at A$4.99 a share yesterday.

Andy Smith, an analyst at MF Global, said the announcement made by Foster's "increases the pressure on SAB" to raise its offer. He said: "We believe that a revised bid of about $A5.20 will ultimately be successful."

For the year to 30 June 2011, Foster's suffered an 8 per cent fall in pre-tax profits to A$696.6m. The group's revenues fell by 5 per cent to A$2.28bn, hit by a 6 per cent decline in its beer category.

Mr Pollaers put a brave face on its results by saying: "One of the key wins for us in the past year has been stabilising our market share, correcting a long-term trend of decline."

Foster's has 50 per cent of the Australian beer market and seven of the top 10 brands in the country, including Victoria Bitter, Cascade, Crown Lager and Carlton Draught brands. Unlike in the UK, where it is licensed by Heineken, its eponymous beer is a small player in Australia.

Mr Pollaers boasted its "turnaround is on track" as it focuses on beer and cider, following the demerger of its Treasury Wine Estates in May.

He said: "Foster's is now able to dedicate all of its considerable financial resources and industry expertise to the beer and cider business." On returning value to shareholders, the group said it intended to "undertake capital management" of at least A$500m in its 2012 financial year.

Foster's also said it had kicked off a programme to slash costs by A$55m by 2013.