The company said the demerger was subject to a “detailed evaluation of the issues, costs and benefits to Foster’s shareholders and ongoing assessment of the prevailing economic and capital market conditions”.
The news was announced alongside a financial update, in which the company said that it currently expects EBITS for the year ending 30 June 2010 to be between $1,050-1,080 million, which is broadly in line with consensus estimates.
Foster’s chief executive officer Ian Johnston said: “The beer business is Australia’s market leader and, under new leadership, is focussed on reinvesting in its key brands to continue its track record of positive earnings growth.
“Foster’s wine business is showing signs of growth but continues to be impacted by oversupply in Australia, subdued consumer demand in key international markets and a strong Australian dollar during the 2010 financial year.”
The decision to pursue a demerger follows on from Foster’s Transformation Agenda, announced with the release of the Wine Strategy Review in February 2009, including:
• completing the appointment of new senior management to the wine and beer businesses;
• implementing separate stand-alone organisational structures across beer and wine, including sales and marketing teams in Australia, and re-integrating supply functions into both beer and wine;
• reshaping of the wine portfolio including brand rationalisation and vineyard divestments; and
• achieving significant cost savings, with the company well on track to achieve at least $100 million per annum in the 2011 financial year.
There are also early signs of an economic recovery in some of the major markets in which wine operates, particularly the US.
“We are increasingly seeing the benefits of operationally separating the beer and wine businesses. While the beer and wine businesses are market leaders, they operate in separate market segments with different strategic and operating characteristics,” Johnston said.
A statement from the company said that potential benefits of a demerger include “increased transparency allowing investors to more appropriately value each business over time; greater investment choice; and flexibility for separate boards and management of beer and wine to develop their own corporate strategies and implement capital structures and financial policies appropriate to their businesses.”
Potential issues associated with a demerger may include financing costs, corporate and other costs and one-off implementation costs.
A demerger will require the establishment of separate boards for beer and wine.
“We will proceed as quickly as possible, but priority will be given to ensuring that all relevant matters are carefully and rigorously examined with the intention of continuing to grow our businesses and minimising disruption to our customers, employees, suppliers and other stakeholders,” Johnston said.
No decision has been made on the structure or timing of a demerger, which will depend upon, among other things, prevailing economic and capital market conditions.
A demerger will be subject to all regulatory and statutory approvals and is unlikely to be implemented until the first half of calendar 2011, at the earliest.