Too Early To Drink A Toast To A Foster’s Takeover

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By Chris Shaw

Yesterday was the turn of Foster’s Group (FGL) to enjoy speculation as the next takeover target in the Australian market, the shares rising about 4% to more than $6.80 in active trading.

It isn’t the first time the stock has been the subject of takeover rumours, with both Belgian brewer Inbev and various private equity groups being touted as the potential buyers on this occasion.

But the attraction of Foster’s to Inbev in particular appears questionable, as the focus of that company is on beer operations and so the company’s wine operations, which continue to struggle given Australia’s grape glut, are somewhat less than attractive.

Valuation issues would also come into play, as a premium from current levels would price the stock on an EV/EBIT (enterprise value to earnings before interest and tax) ratio of around 15x, which is not particularly cheap even allowing for likely synergies in the beer operations assuming the bid was made by an industry player.

While traders pushed the stock up yesterday the market professionals are somewhat less excited about a takeover in the short-term, as the FNArena database shows the stock as being rated Buy, Hold and Sell three times each. The average share price target is $6.40, so at current levels the stock is at a premium of around 5%.

Foster’s Shares have weakened today in line with the market, as at 10.50am the stock was down 9c at $6.71.

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