Foster’s Group (FGL.AX), Australia’s largest brewer, pushed ahead on Tuesday with plans to split its beer and wine businesses, but it risked dampening bidder appetite for either unit by also reporting soft first-half profits.
The move could elicit interest from the likes of world No.2 brewer SABMiller (SAB.L) for Foster’s $10 billion beer unit — one of the last prizes in the globally consolidating beer market.
Foster’s said the split, to be completed in May, would help each business pursue its own strategy after efforts to jointly market the two failed.
“As they do the demerger, it promotes the possibility of them becoming a target but the earnings will leave them looking somewhat vulnerable,” said Angus Gluskie, portfolio manager at White Funds, which is a shareholder in the company.
“An acquirer has to be comfortable that there are some structural declines in that industry, primarily the traditional beer brands are really struggling to maintain their place in the market,” he said.
The wine spin-off marks the end of a decade-long expansion, in which Foster’s had spent around A$6 billion building its portfolio buying Southcorp and Beringer to create the world’s second-largest wine company.
It then wrote down its value by half, or nearly A$3 billion, as the global wine glut, a tough market and surging Australian dollar slashed profits.
The beer and wine units are expected to attract interest from trade buyers and private equity firms after they are separately listed on the Australian Stock Exchange.
Foster’s has already rejected one formal bid for the wine business, which owns vineyards from California’s Napa Valley to the Hunter Valley near Sydney and labels including Beringer, Penfolds and Wolf Blass. That offer, from unnamed private equity bidders, was worth $2.5 billion.
BEER DEMAND DECLINES
Australia’s beer market has declined in recent years, as consumers turn to wine and premixed drinks. Government statistics showed that Australians drank an average of 107 liters of beer in 2009, the lowest reading since 1947.
Foster’s, which has been brewing its flagship brand since the 1880s, said it estimated the country’s total beer market declined 7 percent in the six months to December, hit by one of the wettest and coolest summers in decades.
“Our financial results have not been as we would like them,” Chief Executive Ian Johnston told an analyst briefing. But he said the beer unit, Carlton & United Breweries (CUB), had increased its Australian beer market share, as its volumes fell 5.8 percent, less than the sector’s overall decline.
In the current half, beer volumes are expected to decline 3-4 percent. CUB has a market share of around 50 percent, ahead of main rival Lion Nathan (2503.T) with about 42 percent and various small craft beers.
Johnston, who will depart after the split following two years at the helm, said he never intended to put the company up for sale, but any offer would be considered “on its merits.”