Fosters confirms split

Foster’s has confirmed it is pushing ahead with plans to split its wine and beer divisions, but disappointing first-half profits could mean it might struggle to generate attractive bids for either unit.

A decline in beer sales led the company to report a 5.5% fall in pre-tax first-half profits to A$468.4 million. Group revenues, meanwhile, were down 6.6% to A$2.15bn.

As expected, chief executive Ian Johnston confirmed the company would demerge its wine arm, Treasury Wine Estates, into a separate listed entity by the end of May this year.

Johnston said: “The demerger recognises the different business characteristics of, and industry dynamics faced by, our market-leading beer and wine businesses, and that limited benefits were being generated for the business under the current Foster’s Group structure.”

There has been plenty of speculation in recent months that both the beer and wine arms would become sought-after takeover targets following the demerger, with SABMiller particularly strongly linked with the beer operation.

However, analysts believe that the poor first-half performance could strongly dilute any interest.

Foster’s previously rejected a A$2.7bn offer for the wine arm, which includes brands such as Penfolds and Wolf Blass, from private equity group Cerberus Capital last September, saying the offer did not reflect the true value of the business.

It is expected that further bids will be forthcoming once the demerger is finalised in May, though Asahi and Coca-Cola Amatil have already ruled themselves out from bidding for the Carlton & United Breweries (CUB) beer division.

Anheuser-Busch InBev, Heineken and Carlsberg have big debts after recent acquisitions and are considered unlikely to enter into any negotiations.

CUB has taken quite a hit in the first half of the year due to a 7% overall decline in the Australian beer market. The recent floods in Queensland are expected to further hit second-half sales.

Ironically, Treasury Wine Estates, for so long the biggest cause of shareholder pain, is showing signs of turning around.

While volumes declined by 5.9%, pre-tax earnings rose 25.2% to A$99.9m – the second consecutive half-year in which it has recorded 20% or over earnings growth.

Alan Lodge, 16.02.2011