Fernando MonteiroFoster’s Kicks Trevor O’Hoy Out
June 11th 2008 14:24
The cards are now on the table: Foster’s admits it bought Southcorp, a wine maker company, too expensively at $3.2 billion in 2005. If you add to that another flop, Berringer from California, for $2.9 billion in 2000, you won’t need to be a genius to conclude that Foster’s is in deep trouble.
I suppose, as many actually do, that the wine business is quite different from the beer business. Beer goes through a simple process of brewing and bottling while with wine you have to buy the land, grow the grapes and age the wine in cellars after crushing the grapes and bottling it. Capital gets stuck for a long time. Then, most pub and bottle shop owners did not trust the beer man selling them the wine too with all the cost cutting that it represented.
What’s now ahead for Foster’s? One solution I like is to break the company in two: a wine division and a beer division, as it should be. The beer division has a wonderful character and profitability, including brands such as Crown Lager, Victoria Bitter, Carlton Draught, Cascade, Cougar, Strongbow and Black Douglas and imported Corona, Stella Artois, Skyy, Angostura Bitters and Perrier.
The wine division would get the Australian brands Penfold’s, Wolf Blass, Rosemount, Lindemans, Saltram, Seppelt, Wynns and Yellowglen and the American brands Beringer, Etude, Stags’ Leap and Chateau Souverain and the Italian brands Matua Valley, Secret Stone and from New Zealand Castello di Gabbiano.
Foster’s (ASX: FGL) traded today at $5.56 on a P/E of 13.56 times. If it breaks down as above mentioned and its multiples come down substantially the beer division would be a great catch. Just think of when was the last time that you saw the beer price going down.
I suppose, as many actually do, that the wine business is quite different from the beer business. Beer goes through a simple process of brewing and bottling while with wine you have to buy the land, grow the grapes and age the wine in cellars after crushing the grapes and bottling it. Capital gets stuck for a long time. Then, most pub and bottle shop owners did not trust the beer man selling them the wine too with all the cost cutting that it represented.
What’s now ahead for Foster’s? One solution I like is to break the company in two: a wine division and a beer division, as it should be. The beer division has a wonderful character and profitability, including brands such as Crown Lager, Victoria Bitter, Carlton Draught, Cascade, Cougar, Strongbow and Black Douglas and imported Corona, Stella Artois, Skyy, Angostura Bitters and Perrier.
The wine division would get the Australian brands Penfold’s, Wolf Blass, Rosemount, Lindemans, Saltram, Seppelt, Wynns and Yellowglen and the American brands Beringer, Etude, Stags’ Leap and Chateau Souverain and the Italian brands Matua Valley, Secret Stone and from New Zealand Castello di Gabbiano.
Foster’s (ASX: FGL) traded today at $5.56 on a P/E of 13.56 times. If it breaks down as above mentioned and its multiples come down substantially the beer division would be a great catch. Just think of when was the last time that you saw the beer price going down.
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