Foster’s Headed for an Uncertain Future
Most analysts are saying that Foster’s best bet at this point is to split its wine and beer business, although they generally acknowledge that the likelihood of a de-merger anytime soon is slim to none.
There are several reasons why splitting the beer and wine operations would help Foster’s. One, the beer business is much more valuable to potential buyers. Two, it would allow management to focus more closely on the wine biz. And three, the resignation of Trevor O’Hoy, announced earlier this week, is an indicator that a break-up could happen eventually, although analysts warn it will not be a quick fix for Foster’s Group.
DE-MERGER. If the beer and wine businesses were de-merged, a likely bidding process for the high-value beer operation would erupt. The beer business could be attractive to a global brewer (such as SABMiller, Inbev or Heineken), but the wine business would be a much harder sell.
Analysts agree that splitting the wine and beer operations would benefit Foster’s, but the company has yet to say whether they would put their businesses on the chopping blocks.
“The board’s outlook still appears tainted with optimism (‘innovation pipeline healthy’, ‘US showing improvement’), while the review appears to be operational versus ownership focused – with no conclusions expected until late CY09,” said Andrew Kovacs of Macquarie Research.
As a result, he says, a break up or auction is unlikely to happen anytime soon.
“A break up and/or auction process therefore appears off the agenda for now. Even if this were to eventuate the big challenge is finding a bidder for the wine business...we don’t believe this a likely outcome in the short term and is also accompanied by significant risk.”
Foster’s wine business is not very attractive at the moment. Not only has the business done poorly in recent years, but conditions are difficult for Australian wine at the moment due to the strong Australian dollar, bad weather conditions and the weak U.S. economy.
Foster’s Chairman David Crawford said yesterday that it was too early to tell if Foster’s would sell its wine business, but he also indicated that the board will consider “all alternatives.”
Merrill Lynch analyst David Errington said in a note: “The board will, in our opinion, entertain any bid for any asset or indeed any bid for the entire company.”
FIXING THE WINE BIZ. Trevor O’Hoy reportedly issued his resignation on Monday evening after the company uncovered just how bad its wine business is really doing. Analyst Lindy Newton of UBS suggested that other resignations could soon follow for that very reason.
To help make up for the expensive Beringer and Southcorp acquisitions, Foster’s issued a $700 million write-down and transferred $600 million in goodwill from its wine division to its beer, cider and spirits division.
However, Merrill Lynch analyst David Errington said the write-downs were inadequate for the failing wine biz: "The write-off should have been in the billions (of dollars), not hundreds of millions," he said.
He also pointed out that Foster’s underlying performance could get worse, since O’Hoy’s resignation could cause instability within management and the wine business in the U.S. continues to be challenging.
POSSIBLE REPLACEMENTS FOR O’HOY. Most analysts agree the likelihood of Foster’s selling its wine business is unlikely to happen before the end of the year, when the review of the wine business is complete and another ceo has been appointed.
Lots of speculation on who will replace O’Hoy as ceo is mounting among analysts. UBS says an international brewing executive could be a good match.
“In our view there are a number of Beer executives who could be considered for the CEO role at FGL especially post the Heineken / Carlsberg takeover Scottish & Newcastle in January 2008 and the US merger of Molson Coors and SABMiller,” said UBS analyst Lindy Newton.
In her opinion, possible contenders include: Tony Froggatt (former ceo of Scottish & Newcastle), John Dunsmore (who succeeded Froggatt at Newcastle), Dan O’Neill (former Molson Coors Brewing Co. exec), Leo Kiely (ceo of MolsonCoors) and Tom Long (who heads Miller), according to UBS. We somehow doubt that Tom Long or Leo Kiely would take the position, especially since Tom was just named president and chief commercial officer of the new MillerCoors j-v and Leo was appointed ceo. It is an interesting notion nonetheless.
UPDATE ON THE ASCENTIA DEAL
We’ve written several articles on the Constellation, W.J. Deutsch and Ascentia deal over the past couple of days, and figured you might appreciate hearing from someone else for a change. If you’re interested, check out an article by the San Francisco Chronicle.
This is what struck us most: “In an era when California wineries are being snatched up by global corporations, a Healdsburg company has bought five well-known California wine brands.”
“The purchase is a major reversal in the industry - local ownership by a smaller, wine-focused company.”
Here’s a fact you may not have known: Lou Giraudo, the co-founder and senior managing partner of GESD (an investor in Ascentia) is also chairman of Pabst Brewing company.
COSTCO LITIGATION OFFICIALLY OVER
David Burman, an attorney representing the Costco warehouse club, notified the Washington AG in a letter that Costco would not seek an appeal before the U.S. Supreme Court.
They've reportedly called it quits on the Costco v Hoen case because Costco “has accomplished much of what it sought” which includes the end of post and hold and direct shipments. “In a broader sense,” writes Burman, “Costco also fully vindicated its position that almost all of the restraints harm consumer interests, are of a nature that would amount to a per se violation of federal antitrust law, and were not intended to and do not serve temperance purposes.”
Burman ended the letter by saying: “Judge O'Scannlain [of the Ninth Circuit Court] affirmed the power of state government to treat its citizens in violation of federal law. We believe the Task Force should conclude that such power should not be exercised without good cause, and certainly not to serve the financial interests of private wholesalers.”
CLARIFICATION. We want to clarify a comment we made in yesterday’s newsletter. When we referred to Constellation possibly being interested in a “certain Australian wine business” we were hinting at Foster’s, not Yellow Tail. We have been assured that Yellow Tail is definitely not for sale. It was mere speculation on our part, and just for the record, we don’t believe it’s likely that Constellation or anyone will acquire Foster’s wine business anytime soon. We apologize for the confusion.
Until tomorrow, Megan
“Nobody got anywhere in the world by simply being content.”
Louis L'Amour
--------- Sell Day Calendar ----------
Today's Sell Day: 8
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
There are several reasons why splitting the beer and wine operations would help Foster’s. One, the beer business is much more valuable to potential buyers. Two, it would allow management to focus more closely on the wine biz. And three, the resignation of Trevor O’Hoy, announced earlier this week, is an indicator that a break-up could happen eventually, although analysts warn it will not be a quick fix for Foster’s Group.
DE-MERGER. If the beer and wine businesses were de-merged, a likely bidding process for the high-value beer operation would erupt. The beer business could be attractive to a global brewer (such as SABMiller, Inbev or Heineken), but the wine business would be a much harder sell.
Analysts agree that splitting the wine and beer operations would benefit Foster’s, but the company has yet to say whether they would put their businesses on the chopping blocks.
“The board’s outlook still appears tainted with optimism (‘innovation pipeline healthy’, ‘US showing improvement’), while the review appears to be operational versus ownership focused – with no conclusions expected until late CY09,” said Andrew Kovacs of Macquarie Research.
As a result, he says, a break up or auction is unlikely to happen anytime soon.
“A break up and/or auction process therefore appears off the agenda for now. Even if this were to eventuate the big challenge is finding a bidder for the wine business...we don’t believe this a likely outcome in the short term and is also accompanied by significant risk.”
Foster’s wine business is not very attractive at the moment. Not only has the business done poorly in recent years, but conditions are difficult for Australian wine at the moment due to the strong Australian dollar, bad weather conditions and the weak U.S. economy.
Foster’s Chairman David Crawford said yesterday that it was too early to tell if Foster’s would sell its wine business, but he also indicated that the board will consider “all alternatives.”
Merrill Lynch analyst David Errington said in a note: “The board will, in our opinion, entertain any bid for any asset or indeed any bid for the entire company.”
FIXING THE WINE BIZ. Trevor O’Hoy reportedly issued his resignation on Monday evening after the company uncovered just how bad its wine business is really doing. Analyst Lindy Newton of UBS suggested that other resignations could soon follow for that very reason.
To help make up for the expensive Beringer and Southcorp acquisitions, Foster’s issued a $700 million write-down and transferred $600 million in goodwill from its wine division to its beer, cider and spirits division.
However, Merrill Lynch analyst David Errington said the write-downs were inadequate for the failing wine biz: "The write-off should have been in the billions (of dollars), not hundreds of millions," he said.
He also pointed out that Foster’s underlying performance could get worse, since O’Hoy’s resignation could cause instability within management and the wine business in the U.S. continues to be challenging.
POSSIBLE REPLACEMENTS FOR O’HOY. Most analysts agree the likelihood of Foster’s selling its wine business is unlikely to happen before the end of the year, when the review of the wine business is complete and another ceo has been appointed.
Lots of speculation on who will replace O’Hoy as ceo is mounting among analysts. UBS says an international brewing executive could be a good match.
“In our view there are a number of Beer executives who could be considered for the CEO role at FGL especially post the Heineken / Carlsberg takeover Scottish & Newcastle in January 2008 and the US merger of Molson Coors and SABMiller,” said UBS analyst Lindy Newton.
In her opinion, possible contenders include: Tony Froggatt (former ceo of Scottish & Newcastle), John Dunsmore (who succeeded Froggatt at Newcastle), Dan O’Neill (former Molson Coors Brewing Co. exec), Leo Kiely (ceo of MolsonCoors) and Tom Long (who heads Miller), according to UBS. We somehow doubt that Tom Long or Leo Kiely would take the position, especially since Tom was just named president and chief commercial officer of the new MillerCoors j-v and Leo was appointed ceo. It is an interesting notion nonetheless.
UPDATE ON THE ASCENTIA DEAL
We’ve written several articles on the Constellation, W.J. Deutsch and Ascentia deal over the past couple of days, and figured you might appreciate hearing from someone else for a change. If you’re interested, check out an article by the San Francisco Chronicle.
This is what struck us most: “In an era when California wineries are being snatched up by global corporations, a Healdsburg company has bought five well-known California wine brands.”
“The purchase is a major reversal in the industry - local ownership by a smaller, wine-focused company.”
Here’s a fact you may not have known: Lou Giraudo, the co-founder and senior managing partner of GESD (an investor in Ascentia) is also chairman of Pabst Brewing company.
COSTCO LITIGATION OFFICIALLY OVER
David Burman, an attorney representing the Costco warehouse club, notified the Washington AG in a letter that Costco would not seek an appeal before the U.S. Supreme Court.
They've reportedly called it quits on the Costco v Hoen case because Costco “has accomplished much of what it sought” which includes the end of post and hold and direct shipments. “In a broader sense,” writes Burman, “Costco also fully vindicated its position that almost all of the restraints harm consumer interests, are of a nature that would amount to a per se violation of federal antitrust law, and were not intended to and do not serve temperance purposes.”
Burman ended the letter by saying: “Judge O'Scannlain [of the Ninth Circuit Court] affirmed the power of state government to treat its citizens in violation of federal law. We believe the Task Force should conclude that such power should not be exercised without good cause, and certainly not to serve the financial interests of private wholesalers.”
CLARIFICATION. We want to clarify a comment we made in yesterday’s newsletter. When we referred to Constellation possibly being interested in a “certain Australian wine business” we were hinting at Foster’s, not Yellow Tail. We have been assured that Yellow Tail is definitely not for sale. It was mere speculation on our part, and just for the record, we don’t believe it’s likely that Constellation or anyone will acquire Foster’s wine business anytime soon. We apologize for the confusion.
Until tomorrow, Megan
“Nobody got anywhere in the world by simply being content.”
Louis L'Amour
--------- Sell Day Calendar ----------
Today's Sell Day: 8
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 1:57 PM
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