Foster’s tells private equity firms wine bids are corked

Cerberus Capital Management was revealed as the party that submitted a A$2.3-2.7 billion ($2.1-2.46 billion) bid for 100% of the wine unit’s assets and was subsequently rejected. Kohlberg Kravis Roberts & Co. and TPG Capital, have also been reported as potential rival bidders, however their offer was in cash.

Foster’s board rejected the Cerberus proposal on the grounds that it undervalued the company. The Group may well be justified, as the book value of the wine unit was estimated at about A$3.1 billon ($2.83 billion), with analysts predicting an even higher total value of as much as A$3.3 billion ($3.1 billion) on a debt-free basis. However, Foster’s has been forced to take about A$2.5 billion ($2.3 billion) in writedowns and goodwill impairments since 2004, due chiefly to oversupply of wine products.

The company’s wine assets have already been the subject of one previous deal with local private equity. Archer Capital acquired the Australasian Wine Clubs and Services Businesses from Foster’s Group in 2007, while the company was under the direction of former CEO Trevor O’Hoy, who was the architect of Foster’s renewed push into wine in 2005. The group first expanded its core business into the wine industry in 2000, by taking over Beringer Wine Estates, a leading US wine company, in a deal valued at around A$2.9 billion ($2.7 billion). Then five years later, the group made another acquisition in the A$3.2 billion ($2.96 billion) acquisition of Australian wine major Southcorp. Today Foster’s wine unit distributes about 53 different wines from global markets including the US, Italy and Australia. Overall, Foster’s is said to have spent around A$7 billion ($6.5 billion) to expand its wine business over the past decade, unfortunately at the height of the market.

The opportunity for a PE firm to pick up these assets has attracted players who are looking to take advantage of the recent slump in the winemaking industry. Cerberus’ bid certainly took into account declining sales and shrinking profit margins.

One AVCJ source indicated that Foster’s may have already scrapped the plan to sell off its wine business. Foster’s has said its board will continue to consider any proposal that is in the best interests of shareholders, while continuing to evaluate the issues, costs and benefits of a potential demerger of its wine and beer divisions.

Further reading

Cerberus misses Foster's wine business, TPG, KKR in frame

• Restructuring
• 10 Sep 2010

Oz Foster's rejects $2.46b wine offer from new PE player

• Buyouts
• 08 Sep 2010

Investec Wentworth FOF moves from wine to wires

• Australasia
• 13 Apr 2010

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• Topics
• Australasia
• Consumer
• Buyouts
• Archer Capital
• KKR
• TPG Capital
• Cerberus Capital Management