FOSTER’S BREAKING UP BEER AND WINE

Perhaps breaking up isn’t so hard to do after all. Foster’s recently announced plans to spin off its successful brewing unit from its struggling wine operations in a structural overhaul that is expected to spur takeover interest from international brewers. Foster’s said the separation of beer and wine operations would create different Australian stock exchange listings for the two businesses – although a demerger was unlikely until the first half of next year. Foster’s foray into the wine industry never went exceptionally well and investors and industry analysts have for years urged the company to rid itself of the wine business, which has been producing poor returns and weighing on the group’s performance. There has been speculation that restructuring will lead to an eventual sale of Foster’s wine business, but the company has said it was focused on improving wine performance and keeping its options open. Foster’s wine brands includes Penfolds, Lindemans and Wolf Blass.
International brewers have long been interested in Foster’s beer operations but were never likely to act if a sale included the wine portfolio. SABMiller and Japan’s Asahi Breweries are considered to be potential suitors. Chief Executive Ian Johnston said the company was “increasingly seeing the benefits” of separating the two businesses. The separation is subject to a “detailed evaluation of the issues, costs and benefits to Foster’s shareholders and ongoing assessment of prevailing economic and capital market conditions,” the company said. Johnston said that the beer business had maintained growth and further investment was being made in the group’s major brands, which include the global Foster’s Lager and Australian labels such as Victoria Bitter and Crown Lager. Foster’s wine business was showing signs of growth, Johnston said, but continued to be affected by years of oversupply in Australia, subdued consumer demand in key international markets, and a strong Australian dollar. It has completed about half its planned sale of vineyards and eliminated 39 non-core wine brands.