Australia: Foster's Group may have a fight on its hands with its $3.1 billion takeover bid for Southcorp but the Melbourne group's relationship with beer rival Lion Nathan appears to be more congenial, SMH news agency posted on February 4. The country's two largest brewers have again put paid to the notion of a competitive beer market by building on some of the strongest real price growth in 20 years.

Foster's and Lion - which control about 95% of the local market - have realised a 3.5 % increase (after removing a rise in excise), analysts say. Both companies are due to update the market in the coming days. "Coming on the back of 6 % annualised increases in 2004 [financial year] this is a positive outcome," noted Goldman Sachs JBWere. The brewers last year notched up the strongest price growth in two decades at 4 per cent above inflation.

Although beer production is considered a mature business with mainstream labels showing little growth, brewers continue to generate good returns from cost savings, price increases and higher-margin premium beers such as Foster's Crown Lager. However, brokers such as Goldman Sachs warn that retail consolidation will narrow the gap between the pricing of premium and regular beer as the Coles Myer and Woolworths liquor stores continue to win market share.

Foster's, whose main brands are Victoria Bitter and Carlton, will announce its interim results next Tuesday. Lion, whose brands include Tooheys and Fourex, should issue a first-quarter trading update in the next few days. The beer divisions of both companies are expected to generate strong returns while their respective wine businesses continue to struggle.

Deutsche Bank's Lily Kwong forecasts the beer division of Foster's Carlton & United Beverages will generate earnings (before interest and tax) of $565 million in 2005. This compares to her $290 million EBIT forecast for the Beringer wine business.

Foster's, however, is looking to expand its wine business through a hostile $4.17 a share bid for Southcorp.

Southcorp shareholders will receive their bidder's statements this week, with attention now expected to switch to how the wine maker will defend a bid pitched well above analysts' valuations of around $2.70 a share. Southcorp will not comment on suggestions that it plans to forgo an independent expert's report as it prepares to explain why it thinks Foster's bid is inadequate in its bidder's statement, which is due in two weeks.

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