Foster’s beer and wine don’t mix

Group Australia’s largest brewer, said it will separate its struggling wine
unit from its robust beer business, driving its shares up almost 9 per cent as
markets priced in potential takeover bids.

The move brings down the curtain on
a reported $5.8 billion wine expansion that began in 1996 when it bought
Mildara Blass, which has its roots in the Barossa Valley, Australia’s most
famous wine region.

It continued with acquisitions
until as late as 2005, adding Southcorp for $2.7 billion with its Penfolds and
Lindemans brands.

But earnings from wine, which
accounted for 40 per cent of the group total as recently as three years ago,
have slumped by nearly a quarter amid tough trading conditions.

“For the beer business, this
is the first step on its way to being taken over,” said Theo Maas, an
analyst at Arnhem Investment Management, adding he expected SABMiller’s Australian
joint venture with Coca-Cola Amatil to emerge as frontrunner for the beer unit.

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A Coca-Cola Amatil spokeswoman
could not be reached for a comment.

Analysts said smaller rival Molson
Coors which owns a 5 per cent stake in Foster’s could also make a bid, perhaps
jointly with a larger brewer.

Foster’s plan to separately list
its wine business — the worlds second-largest after Constellation Brands Inc
— and its beer unit is likely to be completed in the first half of 2011, with $83
million in annual savings from 2011, it said.

Foster’s wine business faces
oversupply and weak demand. It accounts for almost all of the group’s 32 per cent
overseas revenue and faces headwinds from currency moves.

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.

It has completed about half its
planned sale of vineyards and eliminated 39 non-core wine brands.

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