Molson Coors stake in Foster's fuels takeover talk Font Size: Decrease Increase Print Page: Print UPDATE: Anjali Cordeiro | November 06, 2008
MOLSON Coors revealed today a 5 per cent exposure in Foster's, sending the Australian group's shares up on takeover speculation.
"The Australian market has been interesting to us. We've studied it for quite a while," said Molson's CEO, Peter Swinburn.
The global brewer built up its exposure to Foster's, a wine and beer group, via an asset swap deal with Deutsche Bank in September. Disclosure of the stake had sparked talk of potential takeover interest.
Analysts in Australia played down the possibility Molson's move may signal a takeover play was imminent.
Tyndall Asset Management portfolio manager Craig Young said Molson's market capitalisation was similar to Foster's, a wine and beer group, and raising debt to fund any bid would prove difficult given the current credit squeeze.
"It's not as if they are just going to pick this thing up on a whim, it's not an easy thing for them to do," Mr Young said. "It doesn't look like it's a short-term move, so it's not going to result in a bid in the very near-term."
Another analyst, who declined to be named, said Molson's cash-settled total return swap arrangement with Deutsche bank was a noncommittal way of having a seat at the table for any potential break up, without a major outlay of capital.
But analysts in North America said a move on Foster’s would be an appropriate step for Molson Coors.
"We believe that, having gotten the Miller Coors merger under way, management of Molson Coors is now in the process of bulking up via the M&A route," Credit Suisse analyst Carlos Laboy wrote after news of the Foster's position.
"Foster's makes perfect sense for them on many levels and we would not be spooked by the prospect of a Foster's transaction."
Shares of Foster’s were up 3.9 per cent at $6.08 by mid-afternoon in a sharply weaker market. The benchmark S&P/ASX 200 Index was 3.9 per cent lower.
In a statement, Molson Coors said it acquired an "economic exposure" of roughly 5 per cent to wine and beer group Foster's via a cash-settled total return swap arranged in Australia by Deutsche Bank.
Molson Coors has not bought Foster's stock itself but has used Deutsche Bank as a counterparty, chief executive Peter Swinburn said in an interview.
"Deutsche Bank has acted on our behalf. We have the opportunity to make whatever call we like on the use of that stock," Mr Swinburn said. "We have the exposure to the stock. If we chose at any time to sell it we could do that, if we chose to buy it we could do that."
Mr Swinburn said he would not speculate on the possibility of a deal.
"We would be running really ahead of ourselves if we got into that. I wouldn't speculate on that," he said. "We've got a limited exposure (to the stock), which given the size of our balance sheet is what we think at the moment is prudent.
"Foster's are in the throes of a strategic review and we will keep reviewing the situation to see what they do as a company.”
Molson Coors was formed out of the merger of two of the largest North American brewers: Molson of Canada and Coors of the United States.
The company owns brands such as Blue Moon, Carling, Coors, Killian’s Irish Red, Molson Export and Keystone Light, Rickard’s and Creemore Springs.
Mr Swinburn said Molson Coors hasn't had discussions with Foster's management but as a courtesy, Molson Coors' chairman let the Australian company's chairman know they would be releasing the information about the position.
Mr Swinburn was questioned by analysts on the call about whether the Foster's swap might signal interest in some kind of a strategic deal going forward.
"The Australian market has been interesting to us. We've studied it for quite a while. Foster's is interesting," Mr Swinburn said.
Mr Swinburn was noncommittal on whether the current position would translate into a bigger position or agreement going forward.
Molson Coors could "stay where we are, we might move forward, or we might move backwards and out," he said.
Foster's has long been the subject of M&A speculation.
It instigated a review of its wine business in June following a $730 million write-down against its wine assets and the resignation of then-chief executive Trevor O'Hoy. The move prompted talk that Foster's will split its beer and wine operations, providing a potential catalyst for a takeover.
In September, Foster's said acting chief executive Ian Johnston would take up the role permanently even as Deutsche Bank disclosed it had built up a 5.3 per cent stake in the country's biggest brewer.
Asked if Molson might have an interest in getting into other alcoholic beverage categories, like wine, Mr Swinburn replied that was not in his company's "strategic game plan at the moment."
MillerCoors, the US joint venture of Molson Coors Brewing and SABMiller, was launched on July 1. Despite the weakening economy, Mr Swinburn said in an interview that his company was seeing relatively little evidence of trading down among consumers.
Foster's said today it was unaware of Molson Coors plans for its 5 per cent stake in the group.
"Foster's has not been informed of the precise extent of Molson Coors' interest in the company nor their intentions with respect to that interest," Foster's said.
Additional reporting by Susan Murdoch
Dow Jones Newswires
FGL Price at posting:
$4.93 Sentiment: Buy Disclosure: Held
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