THE DISTILLERY: Foster's twist

Fascinating results from Boral, CSL, Woodside, Brambles and The Reject Shop yesterday, but the mid-afternoon emergence of a hostile bid for Foster's from SABMiller grabbed the attention. Not only is SAB going straight to shareholders, it hasn't lifted the price and says the $4.90 on offer will be cut by whatever final dividend Foster's declares to pay after next Tuesday's annual results. Talk about being hard-nosed and a cheapskate. SAB is either arrogant, or reckons that creating a stink with the bid won't hinder it selling beer to Australians who it has just short changed: an odd point of view.

The Australian Financial Review said this morning: "SABMiller has stunned the market by taking its bid for Foster's Group hostile, bypassing the Foster's board which spurned its $9.5 billion approach two months ago."

Fairfax's Ian Verrender looked at the hard reality of the SABMiller move on Foster's: "While the South Africans obviously will argue that the offer is fully priced and that a takeover premium was built into the share price even before they knocked on the door, it stands to reason that they haven't opened the firefight with all the weaponry at their disposal. So a sweetened bid almost certainly is on the cards. But they clearly have might on their side – and an almost total dearth of opponents – as they appear at this stage to be the only truly natural acquirer."

Terry McCrann wrote in the News Ltd tabloids this morning: "SABMiller has persisted with its too-low opening offer. Foster's will reject it as emphatically as it did two months ago. Yet we have now entered the end-game. Ownership of Australia's iconic brewer is going to pass to a foreign major. It will almost certainly be SABMiller. The battle is now one solely of price. The only real qualification to this is if SABMiller ended up baulking at paying the price that yesterday's move announced it both knew it had to pay and by implication it was prepared to pay. This is not the price that Foster's chairman David Crawford, his board and adviser Christian Johnston from Goldman Sachs would want, and will fight to get."

And The Australian's John Durie wrote this morning: "Foster's now needs to engage with SABMiller after the international beer giant formalised its $11.2 billion bear hug on the local brewer. Foster's boss John Pollaers has rightly been operating as though he wasn't under takeover threat and will proceed as normal. Having launched a bid, SAB has two months to proceed with offer documents, which is long enough to get some debate on the $4.90-a-share price ridiculed by its target."

While The Australian's Nabila Ahmed said this morning: "The Foster's board is due to meet as early as today to talk about SAB's bid but it's unlikely their view on valuation will have changed."

And Bryan Frith wrote in the same paper: "The Foster's board is scheduled to meet this morning to consider the offer but can be expected to recommend rejection. It has little option, as it considered $4.90 so lowball that it didn't justify engagement. Foster's dismissed that price as undervaluing the company in the context of a change of control and said it didn't intend to take further action on the proposal – in other words there was nothing to discuss unless SABMiller was prepared to up the ante. It has since maintained that stance. However, SABMiller appears confident that there is no counter-bidder. If that proves correct, SABMiller may have a good chance of succeeding at the $4.90 offer price."

Business Spectator's Stephen Bartholomeusz looked at CSL's sold result: "After producing yet another very solid result in conditions made difficult by the currency cross-winds gusting through what's now a largely northern hemisphere business, CSL's Brian McNamee still hasn't resolved his major challenge – what to do with the torrents of cash the group continues to generate. On a constant currency basis, CSL produced another strong performance, with underlying earnings up 14 per cent. Reported net profit, after a $116 million foreign exchange impact, was down 11 per cent at $941 million, which was itself a very respectable achievement given the turbulence in the major currencies CSL deals in. Net operating cash flow was just over $1 billion."

And The Australian's Tim Boreham made a couple of good points in his comment on CSL yesterday on the paper's website: "Having provided life-saving drugs to Greece via its hospital system, CSL was forced to accept Greek bonds in lieu of payment. "They seem to have a habit of not wanting to pay very rapidly," quips CSL chief Brian McNamee. The result was a $25 million haircut as the company (wisely) opted for the safety of cash and sold the bonds at a discount to face value. Unconventional receivables management arrangements aside, CSL is a victim of the depreciating greenback, although the damage has been inflicted more by way of a robust Swiss franc against the US dollar and the euro (CSL produces most of its immunoglobin products in the land of the fondue)."

Melbourne's Herald Sun naturally focused on CSL's expansion in Victoria: "Blood product maker CSL has given the Victorian economy a shot in the arm with plans to create hundreds of jobs by building a new manufacturing plant in Broadmeadows. Only a day after Qantas, Onesteel and Westpac flagged plans to cull 1500 jobs as the economy slows, the healthcare group bucked the trend. A strong Swiss franc and Australian dollar may have weighed on CSL's profit but the company is pushing ahead with plans to build the new $250 million facility over the next four years."

The Australian's John Durie also looked at Boral's plasterboard play in Asia on the paper's website yesterday: "Australia's company bosses still struggle to sell Asian acquisitions, as underlined by the negative reaction to Boral's $598 million buyout of its joint venture in Asia. Its stock price is down 5.9 per cent at $3.65 a share because 11 times earnings is perceived to be too high. The reaction, while understandable, misses the point completely. Given the shape of the world right now, that must be worth something. Even better when you consider plasterboard as a product has more growth potential than bricks and other buildings."

This morning Durie used the Boral deal to make a very good point about weak-kneed Australian investors: "All of a sudden Asia is the place to be for Australian industrial companies, but the local investment community is still to be convinced, as evidenced by the negative reaction to Boral's $598 million expansion. The crime in this case was the 11.1 multiple Boral's Mark Selway is paying for assets which his company has built and been intimately involved with since 1993 – namely, a plasterboard business. It plans to buy out the half-share owned by its joint venture partner, Lafarge. Qantas's Alan Joyce is paying tribute to ANZ's Mike Smith for being arguably the first Australian chief executive to actually convince local punters that Asia is a viable and indeed worthwhile point of expansion. Every day we hear how the world economy is now centred on China and India. Australian investors have learned to be leery about offshore expansion and right now they are decidedly glass-half-empty sort of people."

But the AFR's Chanticleer reckons: "Wednesday's 5 per cent fall in the price of building materials group Boral to $3.69 means it is now flashing on the radar of private equity buyers." And given the uncertainty here and offshore, will private equity respond to Chanticleer's importunings?

Fairfax's Elizabeth Knight has gone and gotten all gloomy about the future of manufacturing in this country: "It is at this time of year when large companies are announcing their 2010 financial year profits that redundancy bombshells tend to drop. Over the past couple of weeks, however, there have been more than the usual. The hardest hit have been those in the manufacturing industry, with the biggest cut so far being announced by OneSteel, which will shed 400 jobs. However, there is an expectation of carnage from Australia's largest steel maker, BlueScope, when it completes a review of its operations and announces its results on Monday. Last week Penrice Soda unveiled plans to axe 10 per cent of its workforce. Glassmaker Viridian will eliminate 100 jobs nationwide while the closure of Shell's Clyde refinery has taken 250 positions." And not a mention of the $250 million CSL said yesterday it will be spending on a new Australian manufacturing operation in the next few years.

There's global warming, and there's corporate warming. The AFR found an outbreak of the latter at the Woodside interim profit briefing yesterday: "Gone were the aggressive timetables and the grandiose promises of the past in Peter Coleman's first major outing as chief executive of Woodside Petroleum." Those "grandiose promises" were by former CEO, Don Voelte.

The AFR also says: "Tatts Group has been beset with difficulties lately, but investors are finding it hard to ignore a bumper dividend yield from a business with one of the most reliable cash flows in the market."

Michael Pascoe looked at the conventional wisdom about retailing on smh.com.au: "The RBA has theorised that the wealth effect – consumers feeling poorer because house and share prices are soft – is causing more saving and less discretionary shopping. But changing spending patterns also confuse the picture. For a start, it's not all woe. Our perception is coloured by disproportionate reporting of the two best-known department stores chains, David Jones and Myer. They actually represent a relatively small proportion of retailing, but their profile, helped by the occasional super model, fashion show and constant PR activities, gives another impression."

Fairfax's Adele Ferguson also looked at retailing in a piece on the papers' websites: "If the poor performance of department stores in the various listed property trusts continues, it could start the mall owners thinking about taking back some space and using it more productively. Department stores take up huge amounts of space, which is costly when they aren't performing. There is no doubt that retailing in Australia is hurting, but like the two-speed economy, retail spending is showing signs of being at different speeds in different places and in different categories. But the big white hope is a fall in interest rates. Consumers, department stores and property trusts seem to be on the same page in hoping that the Reserve Bank cuts the official rate sooner rather than later."

Fairfax's Michael West wonders about the future for stockbrokers: "Spare a thought for the poor stockbrokers of the world! While we are unlikely to see a Salvation Army Stockbrokers' Appeal, things are fairly dire and the industry appears destined for another round of rationalisation, save a dramatic and surprise turnaround in global markets. Australia is overserviced for a start. There is a surfeit of brokers and investment bankers, and client demand has been slaughtered by the ravages of the sovereign debt crisis and fears of economic contraction."

And finally, The Australian's economics editor, Michael Stutchbury reported this morning: "Outgoing Reserve Bank board member Warwick McKibbin has called for an end to the majority of business leaders on the central bank board because they might not be tough enough on inflation. The call from the Australian National University economics professor comes amid widespread business complaints that the non-mining economy is being crunched by the Reserve Bank's 4.75 per cent cash rate and the strong dollar. There is no evidence that the business majority on the Reserve Bank board has ever rebuffed Reserve Bank governor Glenn Stevens, but the politically independent central bank faces a growing conflict between the softening non-mining economy and its official forecast that inflation will bubble up above its 2-3 per cent target. And its board may have become more 'dovish' following this month's exit of inflation 'hawk' Professor McKibbin and former Telstra chairman Donald McGauchie." It seems Professor McKibbin must be upset at not getting another term on the RBA board.