MELBOURNE (Reuters) - Foster’s Group FGL.AX sought on Tuesday to put pressure on hostile bidder SABMiller SAB.L to raise its $10 billion offer, unveiling plans for a A$500 million ($521 million) capital return, even as earnings slid and its market share shrank.
Australia’s largest brewer proposed to return money to shareholders via a share buyback or capital reduction in an effort to get SABMiller to increase its A$4.90 a share offer.
But it also reported a 9 percent slide in second-half profit, a rare decline that reflected a depressed beer market and could yet weaken its bargaining position with SABMiller.
Foster’s suffered as profit margins shrank, squeezed by a price war between its biggest customers, Australia’s top supermarkets. Weak consumer spending, a shift away from beer drinking and a wet summer that knocked demand also weighed on earnings, with Foster’s share of the beer market also falling.
“Foster’s expects that the rate of decline in the Australian beer category will moderate in the first half of fiscal 2012,” Chief Executive John Pollaers said in a statement.
In the second half, earnings before interest and tax fell to A$378.9 million ($394 million) from A$416.5 million a year ago.
For the full year, net profit before one-off items fell 8.7 percent to A$494.9 million. After a loss on the recent demerger of Foster’s wine business, Treasury Wine Estates (TWE.AX), the bottom line sank to a loss of A$89 million.
Four analysts on average had expected a net profit before one-off items of A$496 million.
SABMiller took its offer direct to shareholders last week after the Foster’s board rejected its approach as significantly under-valuing the company.
Foster’s shares closed on Monday at the A$4.90 offer price, indicating investors do not see much pressure on SABMiller to raise its bid significantly.
SABMiller, though, has raised $12.5 billion in bid finance, giving it room to hike the offer as high as A$6.12 a share.
The current offer values Foster’s at 12.5 times forecast earnings before interest, tax, depreciation and amortization.
That is around the global average for recent deals, but below other mature-market beer deals such as when Kirin (2503.T) bought Australian brewer Lion Nathan in 2009 for 13.1 times and InBev (ABI.BR) bought Anheuser-Busch for 13.8 times in 2008.
Reporting by Victoria Thieberger and Sonali Paul; Editing by Lincoln Feast and Mark Bendeich