Foster's launches £770m hostile bid for rival Southcorp

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The Independent Online

The bid battle for the Australian wine company Southcorp intensified yesterday as Foster's, the brewing giant, launched a 1.9bn Australian dollars (£770m) hostile takeover of the group.

Southcorp roundly rejected the offer, which follows Foster's move last week to buy a 19 per cent stake in the company. Foster's has now offered A$4.17 a share for the rest of the company, a price it described as "outstanding". But Southcorp said the proposal was "inadequate and opportunistic" and that the offer may "just be its opening bid".

Trevor O'Hoy, the chief executive of Foster's, said Southcorp would be an "excellent strategic fit", a claim used by Southcorp to trounce the offer as too low. John Ballard, Southcorp's chief executive, said: "I agree with Mr O'Hoy that Southcorp would be an excellent fit, but I do not see this reflected in their offer price."

Given the rebuttal of Foster's approach, speculation has mounted that rivals may move in for a counter-bid for Southcorp, which owns brands such as Penfolds, Lindemans and Rosemount Estate. UK drinks companies such as Allied Domecq are understood to be watching the bid situation closely, and Diageo has been named as a possible suitor. Pernod Ricard, the French drinks group which owns the Jacob's Creek Australian wine brand, is also expected to be interested.

Sources close to Allied Domecq and Diageo yesterday ruled out a full bid, although it is understood Allied would be interested in picking up brands that may get sold off if Foster's is successful.

Analysts in London urged caution on Allied, warning it not to overpay for any Australian wine brands. Nigel Popham, of Teather & Greenwood, said: "A full takeover bid from Allied for Southcorp would be detrimental to shareholder value. There may be brands that come up for sale, but Allied should be very cautious over them. It has told investors that its priority is shareholder value. It wouldn't want to end up overpaying for brands that other people don't want. It is unlikely to do anything foolish."

There are also concerns that the Australian wine industry is still suffering from significant oversupply. One analyst said yesterday: "Current pricing levels are going to be difficult to sustain given the overcapacity which still exists."