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8 May 2016

MERGERS AND ACQUISITIONS

Individual Assignment
MBA Weekday Part-Time

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Table of Contents
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It has brewing interests and
distribution agreements spanning across 6 continents (reaching over 60 countries)
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In addition, SABMiller is also one of the world’s largest bottlers of
Coca-Cola products
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617 Million

SABMiller’s growth has been characterised by Mergers and Acquisitions
(i
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Acquisitive growth)
SABMiller’s CEO, Graham MacKay, has made more than two dozen acquisitions since he
moved the Company’s listing to London in 1999
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2002 - North America - The purchase of Miller Brewing Company
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A
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2008 – Hungary - A complete takeover of Dreher

“THE TARGET”
Foster’s is Australia’s beer market Leader, with market share of 50%
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Key Stats for the year ended 30 June 2010
Net Sales Revenue
EBITDA

A$2,395 Million
A$ 948 Million
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From a macroeconomic perspective:” Australia is a resilient and diversified economy,
underpinned by rich natural resources
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These factors coupled with the well managed economy are resulting in
robust economic growth, which averaged 3
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The beer industry in
Australia is stable and profitable
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SABMiller sees an opportunity for further
growth as consumers move towards premium higher value beers
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“It has a national footprint across all states and a well developed route to market
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Victoria Bitter (VB) remains
the single largest brand in the market
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This presents an opportunity for SABMiller to apply its operational and
commercial capabilities to enhance the current performance and to use global scale”
Graham Mackay, CEO SABMiller
How does the acquisition of Fosters fit into SABMiller’s overall Strategy?
“The deal presents an attractive opportunity for SABMiller to create value through the
application of SABMiller’s commercial capabilities and best operating practices
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This aligns with SABMiller’s existing strategic priorities
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That will support
SABMiller’s growth profile
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Focus will be on improving top-line growth, applying best
operating practices and enhancing profitability
 Foster’s has a good fit with SABMiller’s strategic priorities
 Foster’s holds #1 position in Australia’s highly profitable beer market
 Foster’s offers SABMiller exposure to Australia’s strongly performing economy
Markets Analysts response to the acquisition:
"Given the low interest funding cost of 5%, the deal will be earnings enhancing from the
outset, but it will take around five years before the deal is value enhancing”
Cavan Osborne, Head of Industrials, Old Mutual Investment Group (SA)
"I don't think that SAB has overpaid at all, but rather that it's a win-win for both parties
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Deal Background
On 20 June 2011, SABMiller’s proposed purchase was sent to Foster’s Chairman, with the
purpose of reaching a scheme of arrangement
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Key Stats
 The initial Enterprise Value was A$11
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5 times
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90 represents a
14
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28) at 2 June 2011
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SABMiller however resolved to continue to seek the engagement of Foster’s board
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These include:
 Minimum acceptance
 FIRB approval
 No Objection from The Australian Competition and Consumer Commission (ACCC)
 All other regulatory approvals
 No regulatory intervention
 No material adverse change
 The conduct of Foster’s business (including terms relating to remuneration and
bonuses of Foster’s Directors)
 Restrictions on distributions
 Taxation Matters
“Neither Fosters, nor any member of Foster’s Group, has at any time prior to the end
of the offer period entered into any enforceable agreement(s) that prevent the use
of tax losses existing as at the end of the Offer Period as a deduction from its
assessable income arising in prior years”
On 21 September 2011, SABMiller ups its bid price to A$5
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5 billion
 Revised Enterprise Value represents an increase of 2
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30 per share to Shareholders

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2bn
AUD 896 Million

Multiple
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5bn
AUD 896 Million

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Risk Management
Foreign Exchange Risk Management
SABMiller’s exchange risk policy is to broadly match currency composition of group
borrowings to currency profile of main operating units
Interest Rate Risk
SABMiller’s “blended” cost for incremental debt of 5% per annum (pre-tax) reflects both its
currency and interest rate hedging policy
Deal Protections
The scheme of implementation deed specifies that in certain circumstances, including a
higher valued competing transaction is announced and completed within 12 months,
Foster’s will pay SABMiller a break-fee of A$ 99 Million, being 1% equity value of the
recommended transaction
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Post Merger Integration
When asked about the impact of the deal on post merger integration, Mr MacKay
responded: “We are keenly aware of Foster’s long standing and proud heritage in Australia
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This includes employees, partners, customers and consumers amongst
others
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One of our key priorities would be to
ensure that employees are empowered, motivated and effective
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It is also worth pointing out that we have a
long and distinguished track record of acquiring and integrating brewing companies into the
group
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Fosters would be
no different
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” Mackay stated that Foster’s will retain its Australian
Head Office, on acceptance of SABMiller’s offer
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No mention was made of who would head
up the Australian brewer post acquisition
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Mackay
expressed no concern about potential boycott of Foster’s products, once it is taken over by
a foreign company
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APPENDIX
SABMiller Foster’s - Deal Timeline

21 June 2011

SABMiller makes an unsolicited approach to acquire Foster’s Group
in a scheme of arrangement
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90 per share, in cash,
the consideration is A$9
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Including net debt, the deal is
valued at A$11
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Fosters Group rejects SABMiller’s approach
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SABMiller Share Price increases +2
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00

17 August 2011

SABMiller has officially launched a takeover offer for Foster’s Group to its
Shareholders at A$4
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The deal is subject to a 90%
acceptance, approvals from the Foreign Investment Review Board (FIRB),
Australian Government Organisation responsible for ensuring compliance
with trade practises (ACCC) and other regulators
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4% to R251
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SABMiller Share Price drops -5
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66

21 September 2011

Fosters and SABMiller have entered into a Scheme Implementation Deed
with an increased offer price at A$5
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The total consideration
now, including net debt is A$11
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SABMiller Share price drops by -0
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00

Figure 1: SABMiller’s Deal Timeline
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SABMiller and FOSTER’S Share Price Movement
21 June 2011

Figure 2: SABMiller’s Foster’s Comparative Share Price Movements
The above graph illustrates the Share Price Movement of SABMiller (The Acquirer) in
comparison to Foster’s (The Target) on 21 June 2011, the date when the deal is first
announced
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1%
-R7
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30
(Hours after the Foster’s Board rejected SABMiller’s AUD$11
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61 to A$5
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)
NOTE:
It is normal for a share price of a Predator / Acquirer in a bid to decline,
and for the Target to rise
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SABMiller Foster’s – Enterprise Value Calculation
21 June Proposal

(A$m)

Recommended offer
announcement

(A$m)

Fully Paid

A$4
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Share Price

Share Price

Equity Value

9,520

Equity Value

9,901

Estimated net debt
based on Dec 2010

1,883

Estimated net Debt
at Dec 2011 before
ATO receivables

1,767

ATO Receivables
assumed

(257)

ATO Receivables
assumed in initial
proposal

(257)

Net Debt

1,626

Net Debt before
transaction
adjustments

1,377

Estimated PV of
historic tax losses

(400)

Capital Return
(reflecting historical
tax losses and
improved cash / net
debt position)

582

Minority Interests

17

Minority Interests

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ENTERPRISE
VALUE

11,163

ENTERPRISE
VALUE

11,472

(EV)

(NOTE 1)

(NOTE 2)

(EV)

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NOTES TO CALCULATION OF ENTERPRISE VALUE AND EBITDA

NOTE 1:
Assumes 1,942
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9 million) plus maximum Long Term Incentive Plan (LTIP) shares to be
issued at 30 June 2010 as per Foster's 2010 Annual Report (2
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4 million) plus net debt of A$1
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30 per share capital return
Plus: Minority interests
Less: Estimated present value of historic tax losses =Acquisition enterprise value

A$582m
A$12m
(A$400m)
A$11,472m

(Enterprise Value = Market Cap + Debt – Cash and Short Term Investments)

NOTE 3:
F11 EBITDA is calculated as the median F11 EBITDA forecast in the 8 brokers' reports on Foster's
providing EBITDA forecasts which were published after 17 March 2011 (the date of release of the
Foster's Demerger Scheme Booklet) and were available to SABMiller as at the date of this
announcement
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The brokers' F11 EBITDA forecasts (adjusted as described above) range from A$878 million
to A$909 million with a median of A$896 million

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Figure 3: Global Beer Demand by Region
The above figure illustrates the Highest Global Compounded Annual Growth Rate (CAGR)
in beer demand, belongs to the Asia Pacific Region (incorporating Australia) at 6
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5 Billion
A final price of A$5
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30 and a final dividend
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REFERENCES
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profiledata
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za/moneyweb/sharedata/scripts/sens
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SABMiller plc proposal to acquire Foster’s Group Limited
available at http://www
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com/index
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SABMiller lays out its plan for Foster’s Group
available at http://www
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com
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Recommended Proposal to Acquire Foster’s at A$5
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sabmiller
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asp?pageid=66&newsid=1715
Last accessed: 28/10/2011
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youtube
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Interview with Foster’s CEO
available at http://www
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com/watch?v=U1IsdMmGLzc
Last accessed: 20/11/2011

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