Australian beer giant Foster's on Tuesday rejected an initial Aus$9.51 billion (US$10 billion) takeover bid from SABMiller, but the global brewer said it would still pursue the group.
Foster's said it had received an unsolicited, incomplete, non-binding and conditional proposal from SABMiller for all of its stock at Aus$4.90 per share.
The offer represented an 8.2 percent premium on Monday's closing price but is below the firm's Aus$5.14 finish on Tuesday as it surged 13.47 percent on the prospect of a sweetened offer or a rival bid.
"The board of Foster's believes that the proposal significantly undervalues the company in the context of a change of control and, as such, it does not intend to take any further action in relation to it," it said in a statement.
Foster's, which owns Australia's largest brewer Carlton and United Breweries, recently split its beer division from the underperforming wine assets which had suffered because of a grape glut and soaring local dollar.
The prospect of a takeover of Foster's, one of Australia's best known brands, had been anticipated since the demerger and the move follows consolidation within the Australian beverage industry.
SABMiller said the proposal to buy the Australian company was in line with it strategy to create a global spread of businesses and it would continue to pursue discussions with Foster's.
It said Australia had a strong, wealthy and growing economy, was well positioned to benefit from continued economic growth in Asia, and had a profitable beer market in which Foster's was the leading brewer.
"SABMiller can conclude a transaction quickly and will continue to seek engagement with the board of Foster's to put an agreed proposal to Foster's shareholders," chief executive Graham Mackay said in a statement.
He said the company had a proven track record of acquiring and integrating brewing companies and it aimed to strengthen the Foster's brand.
The Australian company has been battling intense competition in the beer industry, affecting its flagship brands VB, Crown and Carlton Draught. Foster's estimated the domestic beer market shrank 7.0 percent in the second half of 2010.
SABMiller is one of the world's largest brewers and its brands include Peroni Nastro Azzurro, Miller Genuine Draft and Grolsch.
Citigroup analyst Andy Bowley said in a note: "We expect SABMiller to return with a higher bid though question whether it can meet our view of the board's expectations given limited synergies, low post-deal returns, and added risk given current Australian dollar strength."
In 2009, Japan's Kirin Holdings acquired Australia's second largest beer-maker Lion Nathan Ltd. for about Aus$3.3 billion and some analysts view fellow Japanese brewer Asahi Breweries as a potential bidder for Foster's.
SABMiller said it had an agreement with its Australian partner Coca-Cola Amatil to buy its share of their Pacific Beverages joint-venture if the Foster's transaction completes.