The unexpected bid for the world’s second-largest wine business pushed Foster’s shares up 6 percent on hopes of better offers for wine, or that suitors for the beer unit will now step forward. The combined group has a market value of about US$11 billion.
Investors have been focussing on potential buyers for the more lucrative beer business, which is seen as a cash cow with some of the highest profit margins in the brewing world.
The ailing wine business, with vineyards from California’s Napa Valley to the Hunter Valley near Sydney, had been seen as the unwanted child and Foster’s said today it would continue to work on splitting the beer and wine units.
Sales of Foster’s wine, including Beringer, Penfolds and Wolf Blass, have been hit by a deep US recession and a trend away from low-end, bulk wines in Australia. The strong Aussie dollar has also been a drag, slashing the value of US earnings.
“This puts the whole company in play. If you are one of the big brewers, you probably didn’t want to be saddled with a wine business you didn’t understand or want,” said Tom Elliott, managing director of hedge fund MM&E Capital.
“Now you know there are potential buyers out there, you can make a bid for the whole company knowing that you can offload the wine business to private equity or someone else,” he said.
Foster’s shares closed up 4.5 per cent at A$6.34 in a broader market down 0.8 per cent.
BEER BUYERS
Foster’s shares also spiked late last month after sources said brewing groups SABMiller and Japan’s Asahi Breweries were looking at the company’s beer operations, valued at more than US$10 billion, but no firm bids have emerged.
The wine business is valued at A$3.1 billion (RM8.85 billion) on Foster’s books, or about half what the company spent on wine acquisitions in a rapid expansion as it sought to offset flat demand for beer.
Foster’s spent over A$6 billion building its wine business, which ranks behind Constellation Brands Inc, with its acquisitions of California’s Beringer Wine Estates in 2000 and Australia’s Southcorp in 2005.
Foster’s has spent the last year overhauling wine operations, selling unprofitable vineyards, changing US distributors and focussing on higher-margin wines above US$8 a bottle.
Analysts value the business at A$1.7 billion to A$3.5 billion.
Foster’s was formed in the 1880s, when the first Foster’s Lager was brewed — becoming one of Australia’s top brands — and the Mildara Winery was established.
KEEN ON WINE
Foster’s said the offer from the unnamed international private equity firm, worth A$2.3 billion-A$2.7 billion, was highly conditional and requested exclusivity, which it said reduced the value of the proposal.
It said the offer “significantly undervalues” the wine business, known as Treasury Wine Estates, and its future prospects.
A deal for the wine unit would have been the largest buyout by a private equity firm in the Australian market since 2007.
The major international private equity firms represented in Australia either declined to comment or did not return calls. They included Blackstone, KKR, Carlyle, TPG and CVC.
Bain & Co in New York did not return calls seeking comment.
International private equity firms have shown renewed interest in cheap Australian assets this year, snapping up hospital owner Healthscope in July for A$2 billion.
Foster’s spokesman Troy Hey declined to comment on the identity of the suitor, because the matter was confidential.
Banking sources said that TPG could be interested in buying back some of the assets it previously owned — it owned about 55 per cent of Beringer with some partners when it sold to Foster’s for AUS$2.6 billion, including debt.
Beringer itself was established in California’s Napa Valley in the 1870s.
Foster’s said it is continuing with its plans to separately list its beer and wine businesses in 2011 but left the door open to other offers.
“The one positive side is (it shows) people could genuinely be interested in the wine business. At least that’s encouraging,” said Argo Chief Executive Jason Beddow, which owns Foster’s shares.
Earnings from the wine business rose 21 per cent to AUS$221 million for the year to June 2010, but a massive AUS$1.3 billion writedown on the wine assets, the third for the unit, marred the group’s bottom line.
Foster’s has hired Gresham Advisory Partners and Goldman Sachs to advise on the demerger. — Reuters