Foster’s in search of a buyer
Who will buy Foster’s beer business? That’s a really good question as the Foster’s Group prepares for its demerger. Already, Japanese beer group Asahi Breweries has taken itself out of the running to buy Foster’s beer arm, calling the assets too expensive, as did Coca-Cola Amatil’s boss Terry Davis who also thinks Foster’s looks a little too pricey. Which thins the ranks of the usual suspects down to SABMiller.
However, as Australian hacks have recently discovered, any buyer of Foster’s twin beer or wine unit will actually acquire a company that’s still joined at the hips to its former sibling through a shared IT platform, on which the core operation of each business, including orders, delivery, receivables and sales, are enmeshed. What a mess. And who’s responsible for that? Step forward: Foster’s current management.
The Managing Director of Coca-Cola Amatil (CCA), Terry Davis, has again played down the likelihood of a billion-dollar grab for the brewing operations of Foster’s but has refused to confirm or deny speculation that his brewing partner SABMiller was about to make a bid for the Foster’s beer unit CUB.
In February 2011 the CCA-SABMiller joint venture, Pacific Beverages, recorded its maiden profit since its formation in 2006: AUD 1.5 million for the 12 months to 31 December 2010 against a loss of AUD 2.3 million in 2009.
As BRAUWELT International reported in February 2011, SABMiller has spent the past few months working with lawyers to sort out legal and commercial issues relating to its joint venture which had prevented it from making a lone bid for Foster’s.
At the end of February, Australia’s hacks discovered that the in-principle agreement between CCA and SABMiller, which will only come into effect if SABMiller bids for Foster’s, is understood to include SABMiller paying CCA a sum of money, which some believe could reach AUD 350 million. Plus SABMiller would relinquish its 50 percent stake in the joint venture and walk away from the newly-built AUD 120 million Bluetongue Brewery near Sydney.
If this is really the nature of the in-principle agreement according to people familiar with the matter (which we at BRAUWELT International find hard to believe), it will make CCA a tidy one-off profit.
Against this backdrop, the big question is whether SABMiller or another potential bidder will circle in on Foster’s before or after it releases its scheme booklet (which will give details of the demerger) in late March.
Whatever the case, a demerger appears to be more complicated than most had believed given some poor management and board decisions at Foster’s over the past couple of years, including a decision to push on with the rollout of a single integrated platform, known as project Core Operations, across its beer and wine businesses even after it said last April it would demerge the businesses and list them separately on the Australian stock exchange.
Instead of adjusting the rollout from an integrated platform to two platforms in April 2010, Foster’s CEO, Ian Johnston, and the board proceeded with a common platform, Australian media said.
This decision is the key reason why the beer and wine businesses will remain joined until June 2013. According to estimates, it will cost Foster’s AUD 42 million to separate the IT platform. And the overall costs of demerging could run to AUD 150 million – far higher than previous demergers.
This also makes it more complicated for any bidder to buy the beer or wine business. Whoever acquires one of the two units at the end will need to have a good relationship with the other owner because of the platform.
No matter what advice Johnston and the board got about the joint platform, they are ultimately responsible for this muddle. To make matters worse, Foster’s head of IT left in December 2010, it was reported.
Seems like Foster’s executives could not organise a piss-up in a brewery let alone the demerger.
