Foster’s wine and beer split could pave way for bidders

If regulatory approval is obtained, Foster’s will once again trade as a beer-only business 15 years after making its first entrance into the wine market. And its wine operations, which generated AUS$1.9bn (€1.4bn) in sales revenue last year, will trade as a separate entity - Treasury Wine Estate.

Chairman David Crawford told investors that the demerger would give the two businesses greater flexibility and focus, as well as enabling each to develop an appropriate financial structure.

Wine versus beer​

In recent years wine has been a poor performer for Foster’s compared to beer. Local wine prices have taken a dive and Australian wine exports have struggled because of the strength of the Australian dollar and high shipping costs.

A recent Rabobank report said Australian wine exports to the UK fell 56 per cent in volume terms last year.

Now that Foster’s is shedding its less profitable wine operations, big global brewers could take an interest in the beer business, which had a turnover of AUS$2.6bn (€1.9bn) last year.

Likelihood of acquisitions ​

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“It is hard to see in a strongly consolidating beer market that this asset, which is one of the most profitable markets in the world, will stay independent,”​ said Theo Maas, partner at Arnhem Investment Management.

There could be renewed interest in the wine business as well. It has already attracted attention from the private equity sector – last year US group Cerberus made a $2.5bn offer for the wine operations that Foster’s judged to be too low.

However, the continued strength of the Australian dollar is likely to act as a disincentive to prospect bidders for both the wine and beer businesses.

Maas said: “If it is a listed company that is going to approach Foster's, it's going to be hard for them to explain to their shareholders how to make it an accretive acquisition at this level of the currency.”​