By Ian Neubauer
The Foster’s Board has admitted it made a mistake by investing heavily in wine, announcing a strategic review of its global wine business this morning.
The board had been under pressure to act following consistently disappointing results from wine sales in the Americas caused by the sub-prime crisis and the stellar rise of the Australian dollar. It has made Australian wine more expensive in foreign markets compared to wine from other countries.
However, it is the combination of external forces and the revelation that Foster’s paid too much for wine assets acquired over the past few years that broke the camel’s back. Foster’s paid $2.9 billion for Californian winemaker Beringer in 2000 and $3.7 billion for Southcorp in 2005
“We have been very open in saying our wine returns are not acceptable and the Board is fully focused on delivering value for shareholders,” Foster’s Chairman, David Crawford, said in an announcement to the Australian Stock Exchange.
“We have also instituted a broad ranging strategic review of our wine business focusing on where we compete today, how to capitalise on the growth characteristics of the category and the optimal structure and operation of our wine business into the future.”
The board’s next move is keeping analysts and speculators on their toes, with scenarios ranging from a split of the wine and beer business that would leave shareholders with two kinds of shares to a wholesale exit from the wine industry.
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