Cold Feet For Foster’s?

Analysts warn: Foster’s paying an “extremely high price” for Southcorp

As we go to press with the news that Foster’s A$3.2bn offer for Southcorp has been recommended by most of the Southcorp board (the notable exceptions being its chief executive John Ballard and one non-executive director, Ern Pope, who are said to be holding out for a further 4 cents per share), market analysts have warned that the takeover may not be good for Foster’s after all.

In a research note from Merrill Lynch, analyst David Edrington was reported as saying Foster’s was paying an “extremely high price” for Southcorp and that the group’s net debt for the year would rise from around 9% to 90%, should the deal go through. 

Edrington said: “Our concerns toward Foster’s buying Southcorp (other than price paid) are underpinned by our view that the Australian wine market looks like it will deteriorate over the coming two to three year period and that we believe there are material risks in integrating the companies.” 

The merged company would dominate the Australian wine market, with an estimated 23% of sales, as it combines Penfolds, Rosemount, Lindemans and others from the Southcorp stable with Foster’s offering, which includes Wolf Blass, Yarra Ridge and Beringer brands.

Foster’s CEO, Trevor O’Hoy, remained upbeat about the deal, commenting: “Thecombination of our two great companies will create the world’s leading premium wine company and the first Australian consumer goods company to achieve global category leadership.”