Foster’s Wine Worth $3.6 Billion

As you know, Foster’s Group’s ceo Trevor O’Hoy departed earlier this week as the company admitted it paid entirely too much for its Beringer and Southcorp acquisitions. As a result, Foster’s issued a $700 million write-down and transferred $600 million in goodwill to its beer operations.

In Foster’s investor and media briefing earlier this week, the company was rather vague on just about everything, including whether it will sell its wine business. The mood was tense and analysts were, as you can imagine, rather disgruntled.

POSSIBLE WINE SALE. David Crawford on Foster’s selling its wine operations:

“It would be improper of me or anyone else to speculate as to what the outcomes of that review may be. We will be considering all alternatives, but nobody should be taking the fact that we have commenced a wine review to mean that we have said we are going down a particular course of action with our business.”

One analyst sarcastically replied: “Thanks for such an ambiguous answer.”

NEW CEO. David said Foster’s will consider both internal and external candidates in the search for a new ceo, who will also help in the strategic wine review. He was vague on credentials, though:

“Clearly we want somebody who has knowledge of the beverage industry. We’d by choice like somebody who is an expert across the whole sector. But what we need to do is look at the candidates and assess their various characteristics. We’re not going out and saying we just want a wine person or we don’t want a beer person.”

FOSTER’S IN THE U.S. When asked about Foster’s performance in the United States, David said the following:

“Going forward, I think the US market will remain a challenging market, for one the Australian category, and two also the economic clouds that hang over that market will make general trading conditions difficult. So we’re certainly not foreshadowing that we’re seeing a kink in the curve that would imply that business is going to suddenly start performing to all of our expectations. We believe it will be a slow build.”

DISTRIBUTOR INVENTORY. Angus McKay on the plan to de-stock 1.4 million cases of U.S. distributor inventory:

“We have actually seen positive depletion performance in the April month versus prior period. It’s just not at the levels that may and we want to see.”

“We are already taking steps to short ship distributors over the balance of this month and thereby, make sure that those distributors don’t have stock either transferred into their warehouses or dispatched from Australia.”

TREVOR O’HOY: Analysts repeatedly questioned David about Trevor, who was not present at the conference call. When asked why Trevor resigned, David said the following:

“Trevor, as you all know him, is an extraordinarily decent person who has been very honest and open in all of his dealings. He takes responsibility as CEO for where the company currently is and believes that it is appropriate that he resign, step down and allow a new management team to come in.”

SOUTHCORP. David on when it first occurred to him that Foster’s paid too much for Southcorp:

“It would be fair to say that since I stepped into the role as chairman, I’ve been visiting many of our shareholders and speaking with many analysts, etc. and a number of them have voiced that view during those discussions. That’s clearly been an issue which has been on the table with the board. But we’ve been fundamentally looking at the performance of wine and the performance of wine has been such that it hasn’t justified the price that we paid. So be it; that’s a conclusion we drew.”

WINE BIZ WORTH $3.6B. Foster’s Group’s wine business is worth about $3.6 billion, according to Credit Suisse analyst Larry Gandler. Foster’s spent about $6.4 billion, or 44% more, on creating the business. As Australia’s largest brewer, Credit Suisse values Foster’s beer business at about $9.5 billion.

When beer sales started stalling in the mid ‘90s, Foster’s paid A$482 million for Mildara Blass. In 2000, it bought Beringer Wine Estates of California for A$2 billion and in 2005 paid A$3.2 billion for Southcorp. Foster’s also took on more than A$1 billion of debt from the acquired companies. Altogether, Foster’s is the second largest wine company in the world behind Constellation Brands.

Foster’s must be rejoicing at least a little bit over the news that InBev has presented Anheuser-Busch with a takeover bid, which has helped take some of the heat off Foster’s. InBev’s all cash bid comes out to $65 a share and is unsolicited and non-binding. The overall price is $48 billion.

NEW WORLD WINE GAINING IN POPULARITY

The International Organization for Vine and Wine (OIV) forecasts that the Southern Hemisphere will grow 5% to 51.4 million hectoliters in 2008. They expect a rise in the Southern Hemisphere’s share of world wine exports to almost 25%. Key markets include the U.S., Britain and Germany.

Production growth is helped by “aggressive marketing,” according to the report. Some Chilean producers are even molding their wines to appeal to the U.S. palate, as consumption in the U.S. steadily rises.

WINE GROUP MOVES MARKETING UNIT TO LIVERMORE

Wine Group has reportedly expanded its East Bay operations and moved its marketing unit from San Francisco to Livermore. The Livermore facility consists of Concannon winery and related bottling operations and offices for Kent and Wine Group sales and marketing execs. The San Francisco office is now manned by a skeleton crew.

The company is adding a 45,000 square foot production facility in Livermore to the original Concannon Vineyard. It is expected to be completed by the 2008 fall harvest.

RNDC EXEC DAVID FRIEDLAND DIES

We regret to inform you that David Friedland, CEO of RNDC Nebraska, died yesterday (June 11th) morning. David is survived by his wife, Nancy, daughter Melissa and husband Gary Steiner, daughter Paula and husband Matt Boggust, son Edward (Ted) Friedland and wife Jamie, and eight grandchildren.

Services will be held on Friday, June 13th at 2:30 P.M. at the Temple Israel, 7023 Cass Street, Omaha, Nebraska. In honor of David Friedland, RNDC Nebraska will be closed at noon on Friday. Memorials are suggested to The Rose Blumkin Home or the Omaha Humane Society.

WSD BRIEFS:

PIER 1 IMPORTS OFFERED TO BUY COST PLUS WORLD MARKET, a smaller rival, for about $88.4 million in stock. In addition to its home-furnishings, Cost Plus is known for its wine selection and specialty groceries. The offer is valued at $4 a share.

INTERNATIONAL WINE ASSOCIATES Principal, Robert Nicholson, served as advisor to Constellation Brands in the sale of some of its California and Pacific Northwest wine assets to Ascentia Wine Estates for up to $234 million.

Until tomorrow, Megan

“How my achievements mock me!”
William Shakespeare

——— Sell Day Calendar ———-
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