Foster's rejects offer for wine assets

Global beverages firm Foster's Group says it has received a non-binding proposal to buy its Treasury Wine Estates wine assets for between A$2.3 billion ($2.9 billion) and A$2.7 billion.

Foster's shares soared on the approach, rising as much as 6.1 per cent, or 37 cents, to A$6.44 in morning trade.a

Foster's said that it had rejected an unsolicited expression of interest from an international private equity firm, which would have been the largest buyout by a private equity firm in the Australian market since 2007.

The Foster's board said it believed that a proposed separation of the wine business from Foster's beer business, through a demerger, was still the best outcome for shareholders.

The indicative proposed value range ''significantly undervalues'' Treasury Wine Estates and its future prospects, Foster's said in a statement.

''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 board of Fosters believes that Treasury Wine Estates is well positioned to grow over the coming years and thereby create additional value for Foster's shareholders.''

Analysts have valued Foster's wine business at A$1.7 billion to A$3.5 billion.

"It seems like a nice little opening bid here, it is definitely going to speed up the process (of a sale)," said Arnhem Investment partner Theo Maas. "But in terms of the value, it is lower than the book value. We are at the low point in the cycle and looking at very depressed earnings levels."

A Foster's spokesman declined to identify the private equity firm behind the expression of interest because the proposal had been made confidentially.

The spokesman said the Foster's board had considered and rejected the proposal early on Wednesday morning.

In August, Foster's reported a net loss of A$464.4 million for 2009/10, compared to a net profit of A$438.3 million in the prior year.

The result included a previously-flagged non-cash impairment of A$1.16 billion against the carrying value of the group's wine assets.

Foster's sold less beer and wine by volume as consumer sentiment in the beer market softened and market conditions in the wine sector were mixed.

Foster's said market conditions in the wine business remained mixed, with oversupply in the Australian market, a subdued consumer environment in key international markets, and the strength of the Australian dollar expected to continue to affect the business.

Earnings from Treasury Wine Estates fell 27.2 per cent to A$221.3 million, with unfavourable exchange rates having a major impact.

On a constant currency basis, earnings rose 20.5 per cent, with earnings more than doubling in the second half.

Wine volumes dipped in Australia and New Zealand as the company exited the cask wine sector and dumped 37 ''tail'' brands.

Foster's said that Treasury Wine Estates had been making significant progress in implementing a transformation program.

Foster's said it remained committed to the evaluation of issues, costs and benefits of a potential demerger, with work progressing to schedule.

''However, the board will continue to consider any proposal that is in the best interests of shareholders,'' Foster's said.

Foster's shares jumped in late August after sources said brewing groups SABMiller and Asahi Breweries are looking at the company's beer operations, valued at more than A$12 billion.

Foster's said it is continuing with its plans to split its beer and wine businesses in 2011.

"After considering the value range in the proposal, the board of Foster's continues to consider that a separation of the wine business from the beer business through a demerger is most likely to represent the best outcome for all Foster's shareholders," the company said.

The wine operations have a margin of 10.6 per cent.

The company spent over A$6 billion building its wine business, the world's second largest, with its acquisitions of California's Beringer Wine Estates in 2000 and Australia's Southcorp in 2006. Foster's has hired Gresham Advisory Partners to advise on the demerger.

- with REUTERS

- AAP