Treasury Wine Valued at $2.3 Billion After Foster’s Spinoff

Treasury Wine Valued at $2.3 Bln After Spinoff From Foster's
David Dearie, chief executive officer of Treasury Wine Estates Ltd., right, and Mark Fleming, chief financial officer, pose in front of an electronic board on the first day of listing at the Australia Securities Exchange in Melbourne. Photographer: Carla Gottgens/Bloomberg

Treasury Wine Estates Ltd., the world’s second-largest winemaker, gained in its first day of trading, valuing the company at A$2.2 billion ($2.3 billion) after it was spun off from Foster’s Group Ltd.

Treasury rose from a starting price of A$3.21 to A$3.36 at the 4:10 p.m. close of trading in Sydney. The Melbourne-based company has about 650 million shares on issue after Foster’s investors gained one share for every three they had owned in the combined company.

Treasury, with brands including Penfolds and Beringer, was spun off by Foster’s after more than A$2.5 billion of writedowns so the brewer could focus on its 50 percent share of the Australian beer market. The separation was completed yesterday.

Separate companies make it easier for prospective bidders to value both businesses, after Foster’s rejected an offer for Treasury worth as much as A$2.7 billion last year, according to investor Theo Maas.

“Two separate sets of numbers make these simpler companies to value and run,” said Maas, who helps manage about $5.4 billion at Arnhem Investment Management in Sydney, including Foster’s stock. “It gives clarity for the boards to work out what they may be worth if there is a bid.”

Foster’s shares rose 2.7 percent to A$4.53 after adjusting for the split. The stock closed yesterday at A$5.48 in their last trade as a combined beer and wine company.

The two companies have a market value today of A$11 billion compared with A$10.6 billion yesterday as a single entity.

Bid Reports

Since announcing plans for the breakup last year, Foster’s has been linked in media reports to potential bids from a number of international rivals.

SABMiller Plc is considering an offer for the beer business, the Sunday Times reported Aug. 22, without saying where it got the information. Asahi Breweries Ltd. of Japan hired advisers to look at the beer business, the Times reported Aug. 24.

David Dearie, who has been running the wine business in Australia and New Zealand since July 2009, has become Treasury’s chief executive officer. John Pollaers is taking the same role at Foster’s after about a year in charge of its Australian beer operations.

Dearie plans to cut A$100 million of annual costs from Treasury by the end of June by reducing expenses for packaging, warehousing and bottling. He is also targeting shorter production runs for brands such as Wolf Blass to enable Foster’s to cut inventory holding costs.

“As a standalone business Treasury Wine Estates will benefit from enhanced strategic and management focus,” Treasury Chairman Max Ould said in an e-mailed statement, “The performance of the business continues to improve.”

Takeover Spree

In September, Foster’s rejected a bid for Treasury worth between A$2.3 billion and A$2.7 billion, saying the price undervalued a business that generates in excess of A$2 billion of annual sales from 35 million cases of wine.

The breakup ends a 15 year diversification strategy by Foster’s, which spent more than A$6 billion buying winemakers in Australia, North America and Europe to limit the impact of stalling Australian beer consumption.

The company’s first wine acquisition was Mildara Blass Ltd. in 1996 for A$482 million. It paid A$2.6 billion in cash and debt for California’s Beringer Wine Estates Holdings Inc. in 2001, and its A$3.2 billion purchase of Southcorp Ltd. in 2005 cemented its ranking as the world’s second-biggest winemaker behind Constellation Brands Inc.

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