(Reuters) — Foster’s Group Ltd, Australia’s largest brewer, said it rejected a private equity offer worth up to $2.5 billion for its wine unit as too cheap and would continue with the split of its beer and wine businesses.
The bid for wine surprised investors who have been focusing on potential buyers for the more lucrative beer business, and boosted the share price almost 6 percent on Wednesday to its highest since January 2008.
Sales of Foster’s wine, including Beringer, Penfolds and Wolf Blass, have been hit by a deep U.S. recession and a trend away from low-end, bulk wines in Australia. The strong Aussie dollar AUD= has also been a drag, slashing the value of U.S. earnings.
“It seems like a nice little opening bid here, it is definitely going to speed up the process (of a sale),” said Arnhem Investment Management partner Theo Maas.
“But in terms of the value, it is lower than the book value. We are at the low point in the cycle and looking at very depressed earnings levels,” he said, explaining the company’s reluctance to accept the offer.
Analysts have valued Foster’s wine business at A$1.7 billion to A$3.5 billion.
Foster’s shares spiked late last month after sources said brewing groups SABMiller and Asahi Breweries
FOCUSING ON COMPANY SPLIT
Foster’s said the offer from the unnamed private equity firm, worth A$2.3 billion-A$2.7 billion ($2.1 billion-$2.5 billion), was highly conditional and requested exclusivity, which it said reduced the value and certainty of the proposal.
A deal for the wine unit, recently rebranded as Treasury Wine Estates, would have been the largest buyout by a private equity firm in the Australian market since 2007.
International private equity firms have shown renewed interest in cheap Australian assets this year, snapping up hospital owner Healthscope in July for A$2 billion.
Foster’s said it is continuing with its plans to split its beer and wine businesses in 2011.
“After considering the value range in the proposal, the board of Foster’s continues to consider that a separation of the wine business from the beer business through a demerger is most likely to represent the best outcome for all Foster’s shareholders,” the company said.
Foster’s spent over A$6 billion building its wine business, the world’s second largest, with its acquisitions of California’s Beringer Wine Estates in 2000 and Australia’s Southcorp in 2006, but has taken huge writedowns.
Its full-year profit excluded a massive writedown for its beleaguered wine business of A$1.27 billion. It was the third major writedown for wine, bringing the total near A$3 billion.
Shares in Foster’s were up 5.4 percent at A$6.40 at 0032 GMT.
Foster’s has hired Gresham Advisory Partners and Goldman Sachs to advise on the demerger.