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B&E This Fortnight
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B&E This Fortnight

Issue Date - 21/07/2011

$10Bn bid for Foster’s

Despite slow growth and maturing markets in beer producing countries, Australia’s largest brewer - Foster’s Group - has been offered $10 billion by the world’s second-largest brewer - SABMiller - for a takeover of the Australian favourite. SABMiller offered $4.90 per share to Foster’s for the buyout, which was 8.2% higher than the latter’s closing stock price on Monday. The deal would have been the biggest in the brewing industry since InBev bought Anheuser-Busch for $52 billion in 2008, but it was rejected by Foster’s on the grounds of being too low. Showing a strong investor confidence in the decision of Foster’s, the share prices shot up to a 9-month high of 14% on the news. Foster’s has been the subject of takeover ever since it announced its plans to spin off its struggling wine operations - Treasury Wine Estates that got listed in Australia, just last month. SABMiller that makes Peroni, Grolsch and Miller Lite, has been a favourite among the potential bidders. Despite a downturn in the beer market, Foster’s is supposed to be a good option to acquire due to its dominant position in Australia and high margins of about 37% that is almost double of its global peers. It is expected that SABMiller will increase the offer price in the second round of negotiations and the offer price can see a hike of 10-12% to A$5.40-A$5.50 per share.

Cheap us stocks
The shares of companies that make up the S&P 500 index - one of the most used benchmarks for the U.S. stock market - will earn 18% more this year on the back of cheap valuations of shares, the cheapest level in 26 years. Since April, share prices have been on a decline, pushing the price of the S&P 500 to 14.5 times the past year’s earnings, compared with the average of 20.5 since June 1991. As a result the index is valued at 8.7 times cash flow, cheaper than it has been 81% of the time since 1998. But if S&P 500 companies are expected to earn more in 2011 than in 2010, why, then, have prices been falling? That’s because investors are apprehensive of future gains on account of concerns such as the Greek crisis coupled with China’s rising interest rates & the Federal Reserve’s $600 billion stimulus programme.

Greek Crisis Eases
Despite a severe debt crisis hovering over Greece since April 2010, the double blow that it was scheduled to face due to the re-scheduling of the Greek government bonds as insisted by the German government is now slowly easing off. In fact, the German government has also indicated a voluntary rollover of Greek government debt. The debt rating (by Standard & Poor Ratings) for the Greek government bonds has been falling constantly and currently has a “CCC” grade, the lowest rating for bonds in the entire world. But with some luck, Greece may be able to stablise its situation in the short term.

PNC to acquire RCB
To help it expand in the US south-east, PNC Financial Services Group Inc will buy US operations of Royal Bank of Canada (RBC) for $3.45 billion. RCB has been making losses from its US operations for the past three years. This deal will result in RCB taking an estimated $1.6bn in after-tax charges in the current quarter. PNC gets to add another 420 branches across the south such as Florida, Alabama and Georgia markets with the deal as it becomes the country’s fifth-largest bank in terms of branches totalling 2,870. According to reports, PNC will pay up to $1 billion in stock and rest in cash to RBC. The bank also plans to buy the $165 million credit card portfolio from the Canadian bank. The development marks the end of a turbulent decade for RCB in its attempt to build a retail banking operation in the US since it acquired North Carolina-based Centura Bank in 2001.


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