E-Malt.com News article: Australia: Foster’s beer and wine demerger is in shareholders’ best interests - expert

The proposed demerger of the wine and beer units of global beverages firm Foster's Group Ltd is in shareholders' best interests, partly because it increases the chances of a takeover, an independent expert was quoted as saying by The Sydney Morning Herald on March, 17.

"Foster's shareholders are ultimately likely to be better off if the proposed demerger is implemented than if it is not, notwithstanding the costs, disadvantages and risks," independent expert Grant Samuel & Associates said.

"However, Foster's shareholders should understand that the proposed demerger will not be a panacea for the various challenges faced by the wine business," Grant Samuel said.

"Treasury Wine Estates will continue, in the short term at least, to face pressures on profitability caused by factors such as global oversupply of grapes, subdued demand for premium wines and the strong Australian dollar.

"At the same time, New Foster's will face vigorous competition and market share pressure combined with continued low volume growth in the beer category."

The independent expert's opinion was included in the scheme booklet for the proposed demerger that was released on March, 17.

Foster's said in February that it would proceed with the separation of its beer and wine operations into two separately listed companies.

The beverages giant had been considering a demerger since May 2010.

Under the demerger, shareholders will receive one share in the wine unit, Treasury Wine Estates (TWE), for every three Foster's shares.

"The key benefits expected from the proposed demerger include enhancing the prospects for a change of control transaction involving "New Foster's" and/or Treasury Wine Estates, thereby providing Foster's shareholders with the opportunity to receive a premium for control," the independent expert said.

"There may be no parties interested in acquiring both the beer and the wine businesses.

"The presence of the wine business has arguably acted as a poison pill for parties potentially interested in acquiring the beer business, while parties interested only in the wine business would be unlikely to contemplate an acquisition of all of Foster's."

The independent expert said the wine business had been viewed by many investors as a major negative for Foster's.

Grant Samuel said the demerger could lift the aggregate sharemarket valuation of New Foster's and TWE.

If the demerger did not proceed, there was a real risk of a meaningful fall in Foster's share price.

Other benefits expected from the demerger included improving the ability of the beer business to pursue growth opportunities and allowing the beer and wine units to establish more appropriate capital structures.

Shareholders would have more flexibility to alter their exposure to either the beer or wine business.

Upon the demerger, TWE is expected to have net debt of about A$140 million, comprising A$200 million of external debt under the new syndicated loan facility and about A$60 million of cash.

It is anticipated that all of TWE's gross debt will initially be drawn in US dollars.

Funding for TWE will be sourced from a combination of its own cash reserves, internal cash flows and a A$500 million syndicated bank loan facility.

The total one-off transaction costs of the demerger are estimated to be about A$151.4 million on a pre-tax basis (A$107.5 million after tax), which will be incurred by New Foster's.

The Supreme Court of Victoria on March, 17 ordered that a meeting of Foster's shareholders be convened to consider the proposed demerger.

The shareholders meeting will be held in Melbourne on Friday, April 29.

Shares in Foster's were two cents lower at A$5.45.


18 March, 2011