Fosters (FGL) - Good call

News yesterday reporting that SABMiller had completed work with lawyers to establish/investigate clearance of commercial/regulatory hurdles to a potential takeover of Fosters sparked my interest. 

While a Fosters takeover has long been mooted, the catalyst for an initial rally in the share price occurred in late May 2010 when Fosters announced it was looking into demerger options to separate the wine and beer businesses.  The stock spiked again in August as news reports of potential bidders further excited investors.  But as can so often be the case, the initial fervour died away as news dried up.  News in early January of declining beer volumes also didn't help investor sentiment. 

Source: au.finance.yahoo.com

The SABMiller news yesterday was another reminder to mood-swinging FGL investors that a potential takeover was still on the cards and the stock rallied 4% yesterday.

Having been a tad early in establishing my AscentPharma (APH) position (discussed here and here) I sat out the FGL rally last year.  Recent experience has suggested that after the initial hype of takeover speculation clears, prices fall back as investors with short time horizons and limited attention spans get bored and move on. This is the exact behaviour that those with the appropriate framework and a longer time horizon can benefit from.  

In September last year, Fosters reported rejecting a conditional offer to acquire 100% of the wine assets for a reported $2.3-2.7b.  Using this as a starting point suggests an EV for the beer assets of $10.9-11.3b, and an EV/EBITDA multiple for the beer business of between 10.3x-10.6x (FY10).

A scan of other beer transactions suggests an EV/EBITDA multiple range of 12-14x would be reasonable (Asahi-Tsingtao, Inbev-AnheuserBusch, Kirin-Lion Nathan).  Using Foster's FY10 EBITDA the table below provides a range of valuations under various assumptions for the wine business EV and various takeover multiples for the beer business based on yesterday's closing price of $5.72.

 

Notably, SABMiller hasn't been the only potential bidder mentioned in the rumour mill. Fosters at $5.72 looks like a good call. 

Disclosure: FGL (Long)  

Disclaimer: The information on this site is the author's analysis and opinion and is for informational purposes only and does not constitute a recommendation to buy or sell any of the securities mentioned on this site. The author does not assess, verify or guarantee the adequacy, accuracy or completeness of any information. You bear responsibility for your own investment research and decisions, and should seek the advice of a qualified securities professional before making any investment. 

Centro Retail Group (CER) - Lights, Camera....

Dec. 30 (Bloomberg) -- Blackstone Group LP, the world’s largest private-equity firm, has made a preliminary bid for assets of Australian shopping-mall owner Centro Properties Group, according to a person briefed on the offer.

Melbourne-based Centro -- which manages A$18.6 billion ($18.9 billion) of shopping malls in Australia, New Zealand and the U.S. -- put its assets up for sale two years after its acquisition spree in the U.S. backfired as the world’s largest economy contracted and debt costs soared. Centro said on Dec. 22 it had received several expressions of interest.

Lend Lease Group, Stockland, AMP Capital Investors Ltd. and Colonial First State Global Asset Management are among bidders for the malls, local media reports have said. Apollo Management International LLP has also joined the bidding, the Financial Times reported, without saying where it got the information.

News reports suggest that a competitive bidding situation may eventuate for some or all of the Centro property assets.  A recent look at commercial property outlooks in the US and Australia also suggest that any future writedowns in asset values may be lower than have been the case over the last few years.  With CER ("good" Centro) clearing its equity hedges linked to CNP ("bad" Centro) and an estimated NAV of $0.40, I have added CER to my portfolio over the last month. 

Disclosure: CER (Long)