Wine Talk

Snooth User: Philip James

Fosters overpays

Posted by Philip James, Jun 12, 2008.

"Foster's Group Ltd.'s wine business, the world's second-largest, is worth about A$3.8 billion ($3.6 billion) according to analyst Larry Gandler, or about 44 percent less than the Australian company spent creating it."

Its quite a depressing quote really. I dont know why corporations so regularly overpay, and get away with it. Its hardly the ideal way to create value.


Reply by Mark Angelillo, Jun 12, 2008.

Oh to be a fly on the wall during the negotiations.

I guess they really needed those wine companies. They've also been at this for over 10 years... Maybe the value of their wine properties is going down...?

Reply by Chris Carpita, Jun 12, 2008.

Some say Australia is going down under, mate

Reply by Stephen, Jun 12, 2008.

Yep, I've read about that as well. I think Foster's is getting crunched, but so are many other producers big and small who are seeing a glut on the market plus currency disparities that are making it difficult to raise prices, coupled with higher component costs (glass etc.). And for the Aussie companies it's even worse because they're also dealing with difficult weather related issues (running out of water, etc.).

Reply by John Andrews, Jun 17, 2008.

I have also read that Fosters got caught up in the winery consolidation swoon a few years ago. While wine consumption is increasing in the US the same can't be said elsewhere on the planet. Throw in vastly different alcohol laws in different regions it can be very difficult to achieve economies of scale. Fosters made a bad purchase and now are trying to correct it.

Reply by Philip James, Jul 3, 2008.
Great article about the likely impact on Fosters stock price if it were to divest its wine operations.

Ironically, one of the companies that says it will be worth 20% more following the divestiture it Citigroup, which is another major breakup candidate!

Reply by John Andrews, Aug 15, 2008.

Following up on the Foster's divesture ... Constellation Brands is selling off Australian assets as well. Interesting times for the Aussie wine industry.

Reply by dmcker, Aug 19, 2009.

The other shoe drops.

Talk is Foster's will likely divest their poorly performing wine division, which has been serving effectively as a poison pill against M&A activity directed at Foster's attractively profitable beer business. Since the markets are beginning to talk themselves into believing that The Great Depression 2.0 is not going to occur, we can expect an increase in acquisitions over the next year.

Interesting that Japan's Asahi is mentioned as one of the two top candidates for taking over Foster's beer division. I've always liked Foster's products better than Asahi's, so hopefully quality would flow up, not down, if that possiblity occurs.

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