Foster's rejects £1.6bn bid for wine business

City A.M. Reporter
Foster's Group, Australia's largest brewer, knocked back a private equity offer worth up to $2.5bn (£1.6bn) for its wine business as too cheap, but the approach could spark offers for the entire group.

The unexpected bid for the world's second-largest wine business pushed Foster's shares up six per cent on hopes of better offers for wine, or that suitors for the beer unit will now step forward. The combined group has a market value of about $11bn.

Investors have been focussing on potential buyers for the more lucrative beer business, which is seen as a cash cow with some of the highest profit margins in the brewing world.

The ailing wine business, with vineyards from California's Napa Valley to the Hunter Valley near Sydney, had been seen as the unwanted child and Foster's said on Wednesday it would continue to work on splitting the beer and wine units.

Sales of Foster's wine, including Beringer, Penfolds and Wolf Blass, have been hit by a deep US recession and a trend away from low-end, bulk wines in Australia.

The strong Aussie dollar has also been a drag, slashing the value of US earnings.

"This puts the whole company in play. If you are one of the big brewers, you probably didn't want to be saddled with a wine business you didn't understand or want," said Tom Elliott, managing director of hedge fund MM&E Capital.

"Now you know there are potential buyers out there, you can make a bid for the whole company knowing that you can offload the wine business to private equity or someone else," he said.

Foster's shares closed up 4.5 per cent at A$6.34.