Foster’s announces plans to demerge beer and wine

Posted by Nicole Eckersley on 26th May 2010

Shelf of beer in supermarketFosters Group Ltd today announced its plans to demerge its beer and wine businesses in a move to separate the thriving beer side from the globally unstable wine market.

“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,” said Foster’s CEO Ian Johnston.

“The beer business is Australia’s market leader and, under new leadership, is focussed on reinvesting in its key brands to continue its track record of positive earnings growth.”

“Foster’s wine business is showing signs of growth but continues to be impacted by oversupply in Australia, subdued consumer demand in key international markets and a strong Australian dollar during the 2010 financial year.”

Despite signs that some of the world’s wine markets may be recovering, particularly the United States, Fosters has tightened the belt on its wine business in recent months, selling vineyards and rationalising brands.

As part of the Foster’s Transformation Agenda, the company has largely untangled its two businesses, appointing new stand-alone organisational structures and re-integrating supply functions into the two divisions.

Foster’s lists the potential benefits of a demerger as: 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 their own corporate strategies and implement capital structures and financial policies appropriate to their businesses.

The company also pointed out that a demerger may incur a variety of costs, and would not take place before 2011. The announcement sparked a rise in share prices this morning, jumping almost 9%.