Foster’s to Split Wine and Beer Units

New company, Treasury Wine Estates, looks to the future; will it sell off brands?
May 2, 2011

Aussie giant Foster’s Group Ltd. is poised to spin off its wine division into a separate company after shareholders overwhelmingly approved the plan on Friday. The new company, Treasury Wine Estates, will have an estimated worth of between $2 billion to $3 billion and a high-profile collection of brands such as Beringer, Penfolds, Wolf Blass and Chateau St. Jean. While industry analysts speculate that the new wine company may soon sell off some of its prime assets, company executives tell Wine Spectator they have no such plans.

The Australia-based Foster’s has long considered its wine division an underperformer compared to its more lucrative beer business. The division expanded during boom times, buying California's Beringer for $1.5 billion in 2000 and Aussie wine firm Southcorp for $2.5 billion in 2005. But wine sales have been sluggish during the global recession, and the Australian wine business has been particularly hard hit, thanks to increased competition from regions like South America, a continued oversupply of Australian juice and a strong Australian dollar that made the wines more expensive in key markets like the U.S. Last year, the company took a $1.2 billion writedown on the wine division's value.

The breakup plan, which received more than 99 percent of shareholders' votes, is expected to be approved Wednesday by Australian courts and go into effect May 20. The move has some analysts speculating that the company will begin selling off some of its wineries and wine brands. To the frustration of some shareholders, Foster’s turned down a reported $2.5 billion offer for its wine division last year. Some analysts wonder if it could make more money by selling off some brands separately.

Australian media reported last week that Beringer, the biggest name in the portfolio, could be up for grabs. “We don’t have any plans to sell off particular wineries at this point,” said Stephen Brauer, managing director of Treasury Wine Estates for the Americas. “I think the demerger is a big benefit for shareholders and employees and ultimately consumers. All of our resources will be focused solely on wine.”

Brauer and his colleagues will need all those resources. Executives at the company concede that consumers aren’t showing the same devotion to more-established labels like Beringer, which has lost market share in recent years. Brauer said that in North America the company will focus particularly on key Napa Valley brands such as Beringer, Stags’ Leap Winery and Etude.

One plan is to simplify its Beringer portfolio and give the brand a facelift because consumers often had trouble distinguishing a $15 wine from a $70 bottle, said Francesca Schuler, chief marketing officer. A series of new brands aimed at women and twenty-something wine drinkers are also in the works.

Like other wine companies, Treasury is putting a renewed focus on emerging markets, positioning its Australian brands with China in mind. “We’re pretty bullish on Asia, and a wine like Penfolds is a terrific entry into that,” said Brauer.

With more than 50 wine brands in a bulging portfolio, it’s difficult to predict the fate of labels like Lindemans and Rosemount from Australia, Castello di Gabbiano in Italy and Meridian, St. Clement and Souverain in California. But Treasury executives seem eager to prove that two companies are better than one, at least when it comes to wine and beer.

Winery Purchases and Sales Australia United States California News

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