Foster's: Australian For Takeover

According to Reuters, Molson Coors TAP and Modelo are considering a joint bid for Australian brewer Fosters that would make the deal the biggest in the beverage sector. If Molson Coors Brewing and Mexico's Grupo Modelo are successful in taking over Australia's Foster's Group Ltd., it would be taking over a company worth $9.5 billion. Foster's shares soared in Australian trading on Friday as a result of the news. Foster's has been the subject of takeover talk since it announced plans last year to spin-off its struggling wine operations, which was seen as a deterrent to potential suitors. There has been other names thrown out there for who is buying Foster's since rumors first circulated late last year that the company was up for sale. Names such as SABMiller, Anheuser Busch InBev BUD have also been named as potential suitors. If Molson and Modelo are able to get Foster's, there are some incredibly attractive assets that would make these two companies even more valuable, especially if they can get the synergies and market share opportunities being talked about. Foster's has extremely high margins in the space (37% according to UBS), and has half of the market share in Australia, which is a strong presence to any potential suitor. The strength of the Aussie dollar may make bidding too expensive for some. A source close to SABMiller echoed these sentiments. In addition to the beer operations, Foster's also has extensive wine operations, which has been the subject of takeovers before, most notably last year when Foster's turned down an offer from Cerberus Capital Management. Molson Coors had purchased 5% of Foster's in 2008, so there is the potential there for Molson Coors to come back again. That 5% stake is now gone. Molson Coors has been mentioned before as a takeover target itself, as it has a market cap of just $8.3 billion, lower than Foster's. The company has been under pressure to expand, and could be the potential target of activist shareholders if the company can not grow and keep shareholders happy. Molson Coors already has a joint venture in the U.S. with SABMiller, so another one with Grupo Modelo may be a difficult task to undertake. Even if Molson Coor's and Modelo were unable to get Foster's, it does continue to keep Molson Coor's in the spotlight. Trading at 11 times forward earnings and yielding 2.8%, shares of Molson Coor's at this level are not expensive, especially when viewed in line with competitors. If Foster's does get acquired here, then shareholders may reap the benefits of a nice, ice cold acquisition. Stay thirsty my friends, it's about to get interesting.