Investors agree to split Foster's into beer, wine units

A patron lifts a glass of beer in Sydney. Beer will remain big business at Foster's, as it spins off its troubled wine division.

Investors in Foster's have voted for an amicable divorce at the Australian drinks company.

At a meeting in Melbourne, more than 99% of votes were cast in favour of a demerger, creating two stand-alone companies.

Foster's will keep its profitable beer business, which sells the Carlton and United Breweries brands.

A newly-created company called Treasury Wine Estates will take over Foster's troubled wine division.

The company will control assets and vineyards in Australia, Europe and the US.

Better prices?

Both firms will be listed in Australia.

Analysts expect each to attract considerable interest from potential bidders such as drinks conglomerates and private equity groups.

"Theoretically, the split makes sense, but we won't know for sure until the stocks have traded independently for a while," said Donald Williams, portfolio manager at Platypus Asset Management.

"The wine business needs a better pricing environment before it is likely to perform," he added.

Foster's, Australia's largest brewer, expanded into the wine business 15 years ago with the acquisition of the Mildara Blass brand.

But the wine division, with labels such as Penfolds, Wolf Blass and Beringer, has for years been a financial drain on the more successful beer business.

Analysts say an oversupply of grapes over the past decade has forced wine prices to fall.

Expensive divorce

Not all analysts agree the demerger will create value, as Foster's board believes.

Greg Dring, an equities analyst at Macquarie, reckons the divorce could cost as much as 1bn Australian dollars ($1.1bn).

"Their claim about value creation appears to lack substance," he wrote in a research report. "In fact, in the short term, the demerger would likely destroy value."

Mr Dring said it was unclear whether the two companies would be able to make more money separately.

Besides low wine prices, Foster's has been hurt by the strength of the Australian dollar, which makes its products more expensive overseas compared with competitors.

The demerger is expected to come into effect on 9 May. Shares in both firms may start trading in Australia as early as 10 May.

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