E-Malt.com News article: Australia: International interest in Foster’s beer business reduced by its struggling wine division - experts

Australia's biggest brewer, Foster's Group Ltd, is less likely to hive off its $3.5 billion wine business, the world's second largest, early next year as there are few obvious buyers and funding is hard to find, Reuters posted on December, 18.

Speculation has been rife that international brewers are circling Foster's beer business if it unhitches the struggling wine unit from a reliable earnings stream generated by an Australian beer market share of more than 50 percent.

However, the chances of the maker of Crown Lager and Victoria Bitter being swept up in a global brewing industry consolidation are decreasing as expectations grow that the wine unit will stay.

Analysts say the A$5 billion wine operation, which ranks behind only Constellation, will be tough to sell as potential buyers are few and harsh debt markets make funding a deal difficult. Returns from selling wine are also under pressure as supplies are plentiful but consumer demand is slowing.

"In this type of market it's going to be very difficult to do anything. My guess is we'll get an internal restructure story," said Theo Maas, investment analyst at Fortis Investment Partners.

The lure of Foster's beer operations, worth A$10-A$11 billion, may not be enough to convince an international brewer to also take on the wine business, which accounts for around 30 percent of Foster's group earnings.

One potential buyer is North America's Molson Coors Brewing Co, which last month emerged as holding a 5 percent interest in Foster's.

For Foster's, analysts say a wine demerger would likely add to costs as debt would need to be restructured -- another reason why this is unlikely to happen soon. Foster's had net debt of A$2.4 billion at end-June, with around 80 percent of that denominated in U.S. dollars.

Morgan Stanley analyst Martin Yule said in a report last week the cost of reorganizing group debt structures was a significant demerger impediment and would not be cheap.

"The wine business cannot service a large debt burden. It would also be untenable to have an Australian beer asset with considerable exposure to U.S. dollar debt," Yule wrote.

Foster's shares are expected to remain solid even if there is no big restructure announcement.


19 December, 2008