(For more Reuters DEALTALKs, click [DEALTALK/)]
By Simone Giuliani
MELBOURNE, Dec 18 (Reuters) - Australia's biggest brewer,
Foster's Group Ltd <FGL.AX>, 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.
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 <STZ.N>, 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.
Buying the whole group would be a hefty bite.
One potential buyer is North America's Molson Coors Brewing
Co <TAP.N><TAP.TO>, which last month emerged as holding a 5
percent interest in Foster's.
The global drinks industry has seen plenty of merger and
acquisition activity this year, with Belgium-based InBev
<INTB.BR> buying Budweiser brewer Anheuser-Busch for $52 billion
and Coca-Cola <KO.N> bidding $2.5 billion for China Huiyuan Juice
Group Ltd <1886.HK>
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 reorganising 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.
Morgan Stanley has an overweight rating on Foster's.
Foster's announced the review of its wine unit in June when
it said it had paid too much for wine assets and returns had
continued to disappoint. Earnings were being hit by tough trading
conditions and a strong Australian dollar, which was hitting its
wine sales in export markets.
"The wine review continues and will be completed no later
than our half-year results," said a Foster's spokesman, declining
to give further detail. Foster's July-December results are due on
Shares in the maker of Beringer and Lindemans wines have
gained about 24 percent since touching a near-4-1/2-year low in
mid-July, while the broader Australian share market <.AXJO> has
dropped by about a quarter.
Foster's shares are expected to remain solid even if there is
no big restructure announcement.
"I think there will be a little bit of disappointment, but
the fact that it's still a low risk play with a very good balance
sheet and a very solid business will hold it in good stead," said
Craig Young, investment research analyst at Tyndall Investment
Helping Foster's case is a decline in the Aussie dollar,
which has fallen almost 30 percent to around $0.70 <AUD=> from a
July peak when it crept close to $1. In the 2007/08 business
year, a strong local currency had sliced A$70 million from
Foster's wine earnings.
(Editing by Ian Geoghegan)
Keywords: DEALTALK/FOSTERS =2
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