A customer takes a six-pack of Foster's beer from the fridge at a liquor store in Melbourne
A customer takes a six-pack of Foster's beer from the fridge at a liquor store in Melbourne August 23, 2010. SABMiller, the world's second-largest brewer, is considering buying the beer operations of Foster's Group, Australia's biggest brewer, for about 7 billion pounds ($10.9 billion), the Sunday Times reported. Reuters

Global brewer SABMiller took its $10 billion bid for Foster's Group direct to shareholders on Wednesday just days before the Australian beer group's annual results are set to show flagging profits.

The cash offer, at $A4.90 a share, was unchanged from SABMiller's first abortive approach in June. It will also be reduced by any second-half dividend Foster's pays, forecast at around 15 cents, or 3 percent of the offer price, SABMiller said.

Set against that, Australia's stock market has fallen by more than 4 percent in the intervening weeks, making the offer arguably more attractive, but analysts still expect Foster's board to rebuff its suitor for a second time after a meeting on Thursday.

SABMiller's renewed assault, flagged in an exclusive Reuters story last week, comes after rival bidders failed to appear, and the targeted brewer is seen as having few other options.

But Foster's closing share price on Wednesday indicated expectations SABMiller will go higher, and holders of Foster's stock want more.

"I don't think the offer on the table is fair value. Foster's is a prized asset with strong cash flow and at probably the low point of its earnings cycle. For an iconic business, that sort of an offer is undercooking it," said Paul Xiradis, Chief Executive at fund manager Ausbil Dexia.

Foster's third-largest shareholder, Perpetual Investments with 4.7 percent, sees the move as "welcome in that it'll get the parties engaged," according to Matthew Williams, its Australian equities manager.

Under Australian stock market rules, SABMiller now has two months to submit a formal bid.

Foster's shares closed up 0.6 percent at A$4.96 in Sydney on Wednesday ahead of the move by SABMiller, whose own shares were up 1.8 percent at 21.57 pounds in London, outperforming the FTSE 100 index which was about flat.

"It is unlikely that Foster's shareholders would accept an offer at A$4.90, but it could be the catalyst for the Foster's board to engage with SAB and agree a recommended offer of up to A$5.40," said analyst Sam Hart at brokers Charles Stanley.

Back in June, Foster's Chief Executive John Pollaers said the offer was too low to be worth discussing, but he recently came under fire at a public forum for failing to engage with SABMiller. Foster's declined to comment further on Wednesday. Its full year results are due on Aug 23.

The cash deal values Foster's at A$9.5 billion ($10 billion). Taking debt into account the enterprise value of the bid is A$11.2 billion ($11.7 billion).

The Foster's business SABMiller is bidding for holds about half of Australia's beer market and little else, having retreated home from the global beer empire it once held and having split off its wine business earlier this year.

The Foster's brand belongs to Heineken in Europe, is licensed to SABMiller in the United States, and is either owned separately or brewed under license in all main markets outside Australia.

A potential SABMiller-Foster's deal would join together the brewer of Miller Lite, Peroni and Grolsch with Melbourne-based Foster's, whose main brands there are Victoria Bitter, Pure Blonde and Cascade, in line with SABMiller's strategy of creating an attractive global spread of businesses.

It would be the biggest brewing deal since InBev paid $52 billion to buy Anheuser-Busch to form AB InBev in the world's biggest cash takeover in 2008.

"As there has been no willingness to engage in relation to SABMiller's proposal on the part of the Foster's board, SABMiller has decided to make an offer to Foster's shareholders directly," SABMiller said in a statement.

When SABMiller launched its bid for Foster's, analysts said the London-based brewer might have to pay up to A$5.20-A$5.40 to succeed, and although analysts' expectations fell as Foster's shares dipped to A$4.51 last week, most now expect SABMiller may have to pay within that original range to win the day.

BUYBACK Defense?

Some analysts says Foster's may look to launch a share buyback or pay a special dividend in order to thwart SABMiller, and some shareholders said this was a possibility.

Citi analysts say Foster's has the capacity to return A$1-A$1.5 billion in cash.

Analysts say there are unlikely to be any antitrust problems in a SABMiller-Foster's combination, nor are any rival bidders expected to surface.

($1 = 0.953 Australian Dollars)