Graham Mackay is the antithesis of the hot-headed businessman. The SABMiller chief executive’s modus operandi is cool, measured and analytical; he is not the sort to launch a takeover bid without a thorough evaluation of the pros and cons.
The negative shareholder reaction to the beer giant’s A$11.2 billion (£7.5 billion) bid for Foster’s last month was understandable. Probably the only debatable decision during his 12-year tenure has been the $5.6 billion (£3.5 billion) acquisition of the US brewer Miller in 2002, so the prospect of another mature markets deal was bound to cause nervousness.
The putative Foster’s deal is different. Miller was a distant number two in a price-sensitive market dominated by Anheuser-Busch, which responded by launching a price war. Conversely, Foster’s is the market leader in Australia, with a 50 per cent share. Although the image of lager-swilling Aussies is a myth, it is a high-margin market and the economic outlook is positive.
There is also plenty of scope for SABMiller to bring its operational skills to bear. Analysts believe that it could drive A$150 million of cost savings and efficiencies in manufacturing and procurement. There is also scope to drive sales of its own brands via the Foster’s network.
The other comfort for shareholders is that Mr Mackay is not about to embark on a win-at-all-costs pursuit. Despite talk of counter-bidders, Asahi and Heineken appear to have ruled themselves out. Anheuser-Busch InBev (ABI) is apparently focusing on paying down debt, although there is a possibility that Modelo of Mexico, in which ABI has a 50 per cent stake, could enter the fray.
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Mr Mackay is likely to bide his time, at least until the Foster’s annual results on August 23. The froth on the Foster’s share price has dissipated and it looks to be heading back to A$5, suggesting that SAB may not have to improve its rebuffed A$4.90 bid too much to win the day.
Mr Mackay has also made clear that he is not abandoning his focus on emerging markets, as this week’s bullish analysis of growth prospects in Latin America show. A $2 billion bid for Schincariol of Brazil looks likely, while in Africa he is known to be pressing SAB’s French partner, Castel, for a bigger slice of the action.
If investors still have doubts over a Foster’s bid, they should consider Mr Mackay’s record during the past 12 deal-laden years: SABMiller has delivered growth in total shareholder returns of 579 per cent. Hold.
Bwin.party
The travails of Full Tilt Poker bring to mind the phrase “one man’s meat is another man’s poison”. The suspension of the online gaming operator’s licences in Alderney and France may be a disaster for the company but it is a shot in the arm for rivals such as bwin.party digital entertainment.
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The removal — at least for now — of one of its biggest competitors has already had a positive impact on bwin.party. Industry figures suggest that over the past week its PartyPoker website has registered a 17 per cent year-on-year increase in volumes. It is early days, but that is an encouraging trend.
The reasons for Full Tilt being targeted by regulators go back to the 2006 ban on internet gambling in America. While most quoted operators such as PartyGaming — now merged with bwin of Austria — withdrew from the US immediately and reached financial settlements with the Department of Justice, some opted to continue taking bets from Americans in defiance of the ban.
Until recently, the US authorities appeared to be dragging their feet in tackling the dissidents, allowing Full Tilt and PokerStars to prosper. Not only did they continue operating in the biggest gambling market in the world, but their greater liquidity — a key draw for poker players — allowed them to entice players away from the smaller European operators. But the status quo was shattered on April 15 — dubbed Black Friday by the industry — as leading executives were indicted and some arrested.
Shore Capital believes that Full Tilt generated about €360 million (£322 million) of European poker revenues and that bwin.party could pick up more than 15 per cent of that, about €55 million. The real prize would be if the Isle of Man suspended PokerStars’ licence. Although the regulatory position in many European countries is uncertain, Lady Luck appears to be smiling on bwin.party. A speculative punt.
Balfour Beatty
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Sometimes boring is good. Balfour Beatty’s statement yesterday that there “has not been any material change in trading conditions” since its previous update on May 10 may not light up too many news headlines, but such comments in these tough markets will reassure investors.
The infrastructure, engineering and construction company has had its ups and downs in recent years. But last year it shrugged off the woes suffered by many of its rivals, thanks partly to big contract wins in the United States. The $93 million (£58 million) acquisition last week of Howard S Wright gives the group further exposure to what Ian Tyler, the Balfour chief executive, believes is a significant growth market for the company.
Picking up where it left off after the first quarter, the group’s half-year trading update demonstrates the benefits of its strategy of diversification, both into different market sectors and geographies. So both UK and US construction are ahead while Hong Kong is making progress. It professes itself “reassured by the stability of our order book” and reiterates its intention to use its strong balance sheet to invest in driving organic growth and make further selective acquisitions. As a result, its net cash position of £340 million will fall to a still enviable £200 million at the full year.
The shares, off ¼p at 316¼p, are trading on a multiple of 8.3 times this year’s earnings. A long-term “buy”.
Travelzest
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It is amazing how often the amount of noise generated by a company is in inverse proportion to its size. Take Travelzest, the AIM-listed holiday minnow. Instead of focusing its efforts on businesses such as Best of Morocco and Captivating Cuba, its management seems to spend its time dealing with fraud allegations, family feuds, profit warnings, debt refinancings and management buyout talks. Investors have been poorly served.
Gilts
UK government bonds pushed to their best for a week after Moody’s declared Portugal’s debt to be junk. Spooked investors ran for haven assets across Europe. The September gilt future settled 82 ticks higher at 121.48, underperforming the equivalent bund contract a touch. In the cash market, ten-year gilt yields fell seven basis points to 3.26 per cent.
Bet of the day
As the euro retreated thanks to the actions of Moody’s, which fanned fears about other countries, spread-traders bought the value of sterling against the single currency. That, despite the quarter-point interest rate rise expected across the eurozone today. Spreadex offered a spot price of €1.1161 to €1.1167 to the pound.
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Move of the day
Coal of Africa jumped 16¾p to 89½p after environmental consent was granted for its controversial Vele Colliery in South Africa, where work had been partly halted since August. Charles Kernot, of Evolution Securities, the company’s broker, saw no reason why shares 25 per cent lower since then should not move much closer to his target of 205p.