Foster's rebuffs A$2.7bn bid for its wine business

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The Independent Online

Foster's has rebuffed an indicative bid for as much as A$2.7bn (£1.6bn) for its Treasury Wine Estates wine business in a move that nonetheless raised speculation that the entire group could ultimately soon find itself under new ownership.

The Australian company said the proposal – from an international private equity firm – "significantly" undervalued the operation, and its prospects. Analysts have put a price of as much as A$3bn on the division.

Foster's, most famous for its blue liveried lager that is synonymous with Australia almost everywhere but in its home market where the "amber nectar" is little drunk, has spent A$7bn building up its wine business but has found the more refined beverage something of a struggle.

The division was built up at the top of the market but has been plagued by write-downs and poor returns. Announcing its rejection of the proposal, Foster's said that it continued to believe that spinning the business off through a demerger was "most likely to represent the best outcome for all Foster's shareholders".

It further said that the "high level of conditionality, the requirement for exclusivity and other terms of the proposal are considered to reduce the value and certainty of the proposal".

The Foster's Group, whose brewing assets would be prized by a number of international beverage groups including, potentially, SABMiller, is capitalised at around A$12bn and while the proposal was rejected, it still raised speculation that the beer side of the business could soon find itself in play.

The knowledge of a suitor for the wine business could attract a bidder which might not be interested in what has been seen as something of a "poison pill" to potential acquirers.

Foster's failed to identify that suitor in its statement yesterday. While the business owns some sought after marque brands, which have suffered from the effects of the global recession, it also sells a substantial quantity of low-cost "barbie" style bulk wines largely produced from irrigated vines in reliably hot areas. There has, however, been a move away from this sort of product in Australia which has further dampened Foster's ardour for the problem child it has spent so much money on building up.

The company added: "Treasury Wine Estates is a leading global wine business with a unique portfolio of premium global brands. The business is making significant progress in implementing its transformation programme. The board of Foster's believes that Treasury Wine Estates is well-positioned to grow over the coming years and thereby create additional value for Foster's shareholders.

"The board considers the indicative proposed value range, referred to above, significantly undervalues Treasury Wine Estates."

Brands: Anyone for a tinny of Penfold's Grange with their Foster's?

It is the king of Australian wines, a drink that is mentioned in the same breath as aristocratic French chateaux in Bordeaux such as Lafite, Latour, Mouton and Margaux, the great first growths of the left bank of the Gironde. And Penfolds' legendary Grange, made from the Shiraz grape (Syrah for Francophones) doesn't seem out of place in their exalted company.

Yet, the dark, concentrated and powerful Australian first growth now is made by the company whose most famous brand in the UK, Foster's lager (where it's actually licensed by Heineken), is well, cold, wet and rather tasteless.

Of course, it is the way of things in the modern drinks business for the sublime to often sit in the same portfolio as the sometimes ridiculous (see the latest UK ads for Fosters). And it's not only Grange, bottles of which sell for in excess of £100 when young and substantially more than when the wine has been cellared for long enough to make it ready to drink, that has found itself in the Fosters stable. Famous names such as Wynns, Wolf Blass and Lindemans also sit alongside the "amber nectar".

While they might not have wines of quite the standing of Grange they can all still boast their fare share of stars alongside the more prosaic every day fare that can be found in supermarkets up and down Britain.

And it's not just Australian wine. In among the bewildering array of brands owned or distributed by Fosters are also some Californians which can be relied upon to produce more than classy cuvees of their own. Take Stag's Leap, for example, whose top wines retail at similar prices to the great Grange. Beringer, with the Napa Valley's oldest continuously operating winery, is another Fossies stablemate.

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