Foster’s OKs demerger

Many thought they would never see it happen. On 15 February 2011 Foster’s Group finally announced its split to go ahead in May this year.

Shareholders will vote on the plan in April, to receive one share in the new wine business for every three Foster’s shares they currently own.

In an effort to sex up Foster’s wine unit Treasury Wine Estates for a sale, it will be supported by a new AUD 500 million syndicated loan facility. Upon demerger, Treasury Wine Estates, the world’s second largest wine company, will have net debt of about AUD 140 million, comprising AUD 200 million of gross debt and cash of about AUD 60 million.

The rest of the group’s liabilities will stay with the brewing business CUB, which will result in Foster’s having “negative net assets” as the debt will be more than the value of its brands and goodwill. Analysts reckon the beer unit could be worth AUD 10.6 billion and the wine business between AUD 3 billion and AUD 3.5 billion.

On 15 February 2011 Foster’s also reported a 12.3 percent fall in net profit for the first half of 2010/11 to AUD 312.1 million, as the performance of its wine division improved, but earnings fell in the beer division. Foster’s operating revenue was AUD 2.24 billion, down 6.7 percent.

Chief executive Ian Johnston said the two key factors affecting Foster’s financial result were the decline in the Australian beer market (down 7 percent in the second half of 2010) and the local dollar’s rise in value.

CUB’s beer volumes fell 5.8 percent.

In the current half, beer volumes are expected to decline 3 percent to 4 percent. CUB has a market share of around 50 percent, ahead of main rival Lion Nathan with about 42 percent and various small craft beers.

CEO Ian 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."