Foster’s shareholders back beer and wine split
Foster’s is no more. Shareholders of Australia’s Foster’s Group unanimously voted on 29 April 2011 in support of splitting the firm’s beer and wine operations, a decision that marks an historic event. The move will create Treasury Wine Estates, with AUD 1.9 billion (USD 2.1 billion) in revenues, while the new Foster’s will remain Australia’s largest brewer with revenues of AUD 2.6 billion (USD 2.8 billion).
Perhaps shareholders were so glad to see the demerger finally go ahead that they did not complain about the high costs of executing the split – reportedly AUD 151 million/USD 164 million – or the payout to CEO Ian Johnston, who stands to take home up to AUD 10 million in cash and shares when he leaves the company in July.
The demerger has been submitted for Federal Court approval on 4 May 2011. Following court approval, the split will be effected on 9 May 2011, with Treasury Wine Estates beginning to trade on the Australian stock exchange the following day.
The demerger is expected to be implemented on 20 May 2011.
Treasury Wine, with brands such as Beringer, Penfolds and Wolf Blass, will rank behind Constellation Brands as the world’s second-largest wine company.
Whether the split will lead to a quick sale of both companies is anybody’s guess.
Foster’s received a surprise offer worth USD 2.5 billion last year for its underperforming wine business from U.S.-based private equity firm Cerberus, which it rejected as too low.
There has been interest in the Foster’s beer group which is valued at USD 10 billion and is one of the last big prizes in a globally consolidating beer market.
However, the high Australian dollar could deter buyers from looking at Foster’s or Treasury in the near term.
Still, the Australian beer market is a duopoly, with some of the highest profit margins in the brewing world. Foster’s has around 37 percent margin on earnings, versus an average 17 percent for global peers, according to UBS.
Foster’s brands have a market share of 50 percent, ahead of Lion Nathan owned by Kirin at 42 percent.
But declining demand for beer has ended a long period of stable volumes. Foster’s said beer volumes fell 5.8 percent in the first six months of the current financial year (ended December 2010) and this should moderate to a fall of 3 percent to 4 percent in the current half.
