Foster's Faces Hard Sell on Vineyards

By Andrew Starke

Foster's Group planned sale of 5000 hectares of vineyards in Australia and the US will be executed for less than the book value of $240 million, according to Credit Suisse analyst Larry Gandler.

While Foster's wine industry struggles have been well documented, the sector as a whole has been battered by oversupply, rising expenses and a more competitive global export market. In this context, Gandler questions the value of Foster’s wine assets in what is currently a buyer-friendly marketplace.

“[A] book value of $240 million is very unlikely to be achieved, in our view,” he said in a Credit Suisse equity research report. “There have been suggestions by industry participants that the larger farms in the Murray Darling be sold to the Government so water can be claimed for environmental purposes.”

The majority of the 31 Australian vineyards that Foster’s has put up for sale are in southeast Australian regions including Coonawarra, McLaren Vale, and the Clare and Eden Valleys. Analysts predict that there will be buyer interest but possibly not at the prices that Foster’s is likely to want.

Foster's corporate affairs spokesperson Troy Hey said the sales would not have an impact on its bigger brands such as Wolf Blass, Lindeman's and Penfolds.

He said the process of splitting Foster’s wine and beer businesses was ongoing and would not be drawn on what valuation the company currently placed on its vineyards.

Foster’s share price was $5.08 at 2:00pm today (Jun 24), up slightly from $5.07 seven days ago.

[Wed 24/06/2009 03:34:21]