Bidding battle looms for Foster’s Group

The move will create Treasury Wine Estates, with 1.9bn Australian dollars (£1.2bn) in revenues and vineyards from Hunter Valley, near Sydney, to California’s Napa Valley, while the new Foster’s will remain Australia’s largest brewer with revenues of 2.6bn Australian dollars (£1.7bn).

Foster’s, which has been brewing its flagship brand since the 1880s, said separating wine and beer would help each business pursue its own strategy after efforts to jointly market the two failed

Treasury Wine, with brands including Beringer, Penfolds and Wolf Blass, will rank behind Constellation Brands as the world’s second-largest wine company.

The split could elicit interest from the likes of world number two brewer SABMiller for Foster’s beer group which is valued at $10bn (£6bn) and is one of the last big prizes in a globally consolidating beer market.

“People have looked at it quite closely. It is hard to see in a strongly consolidating beer market that this asset, which is one of the most profitable markets in the world, will stay independent,” said Theo Maas, partner at Arnhem Investment Management, which holds Foster’s shares.

Foster’s received a surprise offer worth $2.5bn (£1.5bn) last year for its underperforming wine business, from US-based private equity firm Cerberus, which it rejected as too low.

One of Australia’s largest buyout firms, CHAMP, snapped up Constellation’s Australian and British wine operations in December for 230m Australian dollars (£151m), betting on an upturn in the wine cycle.

However, the sky-high Aussie dollar – which posted a 29-year high above $1.09 on Thursday – could well deter global groups looking at Foster’s or Treasury in the near term.

Other possible suitors include private equity giants Kohlberg Kravis Roberts & Co and TPG , who were rumoured to have looked at the businesses last year.

The Australian beer market is a duopoly, with some of the highest profit margins in the brewing world. Foster’s has around 37 per cent margin on earnings, versus an average 17 per cent for global peers, according to UBS.

Foster’s brands including Foster’s Lager, have a market share of 50 per cent.