Private equity firms go cold on Foster’s bid

Foster’s has revealed a 17% fall in full-year profits, which translates into a 17% improvement on last year once exceptional items based on restructuring the group …

… are taken into account. Chief exec Trevor O’Hoy has also reported that the group has recently been courted by a number of big private equity groups, but “the calls stopped six weeks ago”.

O’Hoy said that while he was pleased with progress achieved in the year, notably the relaunch of the Rosemount brand and the improving return on capital for the group’s wine, the company was still “only running on five cylinders out of eight”. After a difficult first half of the financial year, O’Hoy said Foster’s prospects were improving and that the focus was on organic opportunities round the globe.
The market tended to agree, with Foster’s shares rising by 5% on the day of the announcement. The shares were also helped by the company revealing that it has a A$350m share buyback programme, suggesting that major additions to the portfolio are not on the current agenda.

Indeed, O’Hoy said he was not looking to be “an aggressive acquirer” of assets. He also denied that Foster’s had overpaid for Southcorp, which it bought in 2005 for A$3.2 billion.

Foster’s underlying improvements with scope for more to come should make it attractive to private equity groups. Indeed, O’Hoy said that nearly every big private equity group had been in touch with him about possible transactions but this interest dropped away six weeks ago (when the global credit crunch began to increase the cost of raising debt to finance takeovers). He said he thought that conditions had altered radically with private equity groups now looking to sell off over-geared businesses. 

© db / Ron Emler / 29 August 2007