Bidding against oneself

Brian Finn, chairman of Australia’s embattled Southcorp, has issued a letter to shareholders stating that “Foster’s offer of A$4.17 may be just its opening bid.” The Foster’s bid values all of Southcorp at A$3.1 billion ($2.35 billion).

Yet with no other suitor yet emerging, Foster’s controlling 18.8% of Southcorp shares, and Foster’s shares taking a licking in the stock market for fears of overpaying, it’s not clear how Finn hopes to rally resistance to the takeover.

Given that Southcorp barely eked out a profit in the first half of this fiscal year after a A$929 million ($709 million) loss last year, Finn is not bargaining from a position of strength. The combined company would control a third of the Australian wine market, produce Penfold’s, the country’s most expensive wine, as well as the biggest beer, Victoria Bitter.

Will Foster’s raise its A$4.17 per share offer price to meet the market’s 6.5% premium with Southcorp’s shares trading at A$4.44? It’s hard to see them bidding against themselves. As bitter as the news may be for Finn, maybe he’ll switch from drinking Penfold’s to Victoria Bitter.

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