Fosters faces demerger trouble after FD quits

The protracted demerger of Foster’s beer and wine divisions has been dealt a blow with the sudden resignation of finance director Angus McKay.

The company also revealed it has knocked back an offer from an unnamed private equity suitor for its under-performing wine division, saying the offer "seriously undervalued" its wine operations.

The departure of McKay, who will leave at the end of the year to join Asciano, came just days after the beer division was the subject of intense speculation surrounding a mooted bid by SAB Miller.

The move is certain to disrupt the demerger process, announced in May this year, which Foster’s had hoped to conclude by the end of the first half of 2011.

The reason behind McKay’s decision to move on is unknown, though analysts have suggested that he might have viewed the beer unit as a takeover target and got out before he was pushed, or that he might not have been fully in agreement with the demerger process.

Whatever the reason, the fact that Foster’s only began the search for his replacement after McKay had resigned indicates that the move took the company by surprise.

It could also have ramifications in the short-term, with potential bidders encouraged by the immediate loss of experience and temporary loss of direction at the top of the Foster’s management team.

It is believed the company will look to appoint a replacement from within in order to maintain the direction it has been moving in since announcing the demerger.

Potential candidates include Steven Matthews, finance director at Carlton & United Breweries, and group treasurer Peter Kopanidis.

Meanwhile the rejection of the offer for its wine division could open the floodgates for bids for the entire company, which analysts estimate to be valued at around A$11 billion.

The bid, worth up to A$2.5bn, was dismissed as too cheap by the company but shares quickly rose 6% amid hope that bigger offers will be forthcoming.

Tom Elliott, managing director of hedge fund MM&E Capital, told Reuters: "This puts the whole company in play.

"If you are one of the big brewers you don’t want to be saddled with a wine business you didn’t understand or want.

"Now you know there are potential buyers out there, you can make a bid for the whole company knowing that you can offload the wine business to private equity or someone else."

The fact a private equity group, rather than another alcohol company, has made the bid could have lasting ramifications for the future of the Foster’s wine business, which incorporates brands including Beringer, Wolf Blass and Penfolds.

Rather than looking to build the business up, a private equity group could be looking at brands as individual assets and seek to break up the group to maximise return on their investment.

Alan Lodge, 08.09.2010