On the Street: Foster's Split
May 26/RWE Australian Business News -- Foster's Group Ltd. intends to pursue a structural separation to create separate stock exchange listings for its beer and wine divisions, subject to a detailed evaluation of the issues, costs and benefits to Foster's shareholders and ongoing assessment of prevailing economic and capital market conditions.
The decision to pursue a demerger follows significant progress with Foster's Transformation Agenda, announced with the release of the "Wine Strategy Review" in February 2009, including:
* completing the appointment of new senior management to the wine and beer businesses;
* implementing separate stand-alone organizational structures across beer and wine, including sales and marketing teams in Australia, and re-integrating supply functions into both beer and wine;
* reshaping the wine portfolio including brand rationalization and vineyard divestments; and
* achieving significant cost savings, with the company well on track to achieve at least $100 million per annum in the 2011 year.
There are also early signs of an economic recovery in some of the major markets in which wine operates, particularly the U.S., notwithstanding recent volatility in capital markets.
"We are increasingly seeing the benefits of operationally separating the beer and wine businesses. While the beer and wine businesses are market leaders, they operate in separate market segments with different strategic and operating characteristics," chief executive Ian Johnston said.
Potential benefits of a demerger include increased transparency allowing investors to more appropriately value each business over time; greater investment choice; and flexibility for separate boards and management of beer and wine to develop strategies and implement capital structures and financial policies appropriate to their businesses.
Potential issues associated with a demerger may include financing costs, corporate costs and one-off implementation costs.
A demerger will require the establishment of separate boards for beer and wine, with the appropriate mix of skills and experience.
"We will proceed as quickly as possible, but priority will be given to ensuring that all relevant matters are carefully and rigorously examined with the intention of continuing to grow our businesses and minimizing disruption to our customers, employees, suppliers and other stakeholders," Johnston said.
No decision has been made on the structure or timing of a demerger, which will depend upon, among other things, prevailing economic and capital market conditions.
A demerger will be subject to all regulatory and statutory approvals and is unlikely to be implemented until the first half of calendar 2011, at the earliest.
From the June 7, 2010, Prepared Foods E-dition