The struggle for control of Foster’s warmed up on Tuesday after the Australian brewer pledged to return at least A$500m to shareholders, an action that was specified as a potential deal killer to a A$9.5bn hostile offer made for the company by SABMiller.

The UK-listed brewer, the world’s second biggest by sales, this month offered A$4.90 a share for its Australian rival, with several stringent conditions to its bid including a specification that its target did not make cash distributions.

SAB Miller is set to take its offer directly to Foster’s shareholders in the next fortnight or so, but bankers said that the move by Foster’s on Tuesday could lead the UK group to walk away, or alter its offer.

Unveiling Foster’s results on Tuesday, John Pollaers, chief executive of Foster’s, said investors owning more than a quarter of the Australian brewer’s shares backed the board’s decision last week to dismiss SABMiller’s hostile bid, which is conditional on 90 per cent acceptance.

“Shareholders understand the offer fundamentally undervalues the company,” Mr Pollaers said. “It’s a long way off.”

He said Foster’s was prepared to engage with SABMiller if it tabled a “sensible offer” but declined to say what level would secure board support.

Mr Pollaers said Foster’s biggest defence was to keep focusing on the turnround of its beer business now that it was free of Treasury Wine Estates, its recently-demerged wine unit that dragged on the enlarged group’s overall performance in the years following a debt-fuelled acquisition spree.

“For the first time in a decade we can deploy our financial resources for the benefit of shareholders and to build the business,” he said.

SABMiller now has several options, bankers said. It can shelve the offer; reduce the price tag by the amount being handed back to shareholders; or use the conditions of its offer as a bargaining platform. Under this scenario, it could potentially offer more money to secure its quarry.

Foster’s said its share of the Australian beer market had stabilised at 50 per cent, down from a high of 58 per cent nine years ago.

Reporting full-year results on Tuesday, Foster’s said earnings before interest and tax, and before material items, fell 8 per cent to A$816.7m, with earnings from beer down 6.2 per cent. The group’s net annual loss fell from A$464m to A$89m, on sales down from A$2.39bn to A$2.27bn.

Mr Pollaers said beer volumes fell 6 per cent in the year to June, in line with the market, due to unseasonal weather and a challenging consumer environment. He said that was an improvement from previously when Foster’s beer volumes declined at a greater rate than the market.

Foster’s net debt stood at A$1.5bn at the end of June but this falls to below A$900m after including the full benefit from the group’s success in a tax case with the Australian authorities worth A$835m, including interest.

In a sign of market scepticism that Foster’s will be able to extract a much higher bid from SABMiller, shares in the Melbourne-based group rose just 9 cents to close at A$4.99. SABMiller’s offer also excludes Foster’s final dividend, which it set at 13.25 cents on Tuesday.

Some analysts have also questioned whether Foster’s is worth more than A$4.90 a share given the deterioration in its beer business and the absence of alternative suitors.

Macquarie last week said SABMiller had offered too much for Foster’s. “There are no revenue synergies, and there are limited cost synergies outside of eliminating public company costs,” analysts with the bank said.

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