Foster's sells beer business to Scottish & Newcastle

Foster's has sold the full rights to its beer business in a third of the world to the UK's Scottish & Newcastle. The sale rids Foster's of a business hamstrung by the Australian group's chequered past.

The group yesterday said it had sold its Foster's brand in Europe, Russia and central Asia to the Edinburgh brewer, its long-term distribution partner, for 750 million Australian dollars (€453 million).

"Foster's will always be 'Australian for beer'," said Trevor O'Hoy, chief executive. "But most of the economic upside [of the previous partnership] fell to Scottish & Newcastle. We have achieved an outstanding price."

Beamish & Crawford (B&C), brewers and distributors of Foster's beer in Ireland, has welcomed the sale of the brand to Scottish & Newcastle (S&N).

"This is a great deal for both S&N and B&C," a spokesman for B&C said of the sale by Australian firm Foster's. "It means we will be able to develop the brand."

Foster's had Irish retail value sales of more than €38 million in 2005. In the on-trade promotional activity has resulted in volume growth of 28 per cent during 2005, the company said.

The deal is considered less favourable for S&N, which won the rights to brew and distribute Foster's in Europe in perpetuity in 1995 for a relatively cheap price. At the time the Australian group was recovering from near collapse after over-extending itself with a series of audacious deals, including a failed tilt at S&N.

Foster's has been unhappy with the terms of the 1995 licensing agreements, and analysts say the group put pressure on S&N to do a deal that returns some of the brand's value.

The proceeds from yesterday's deal will knock some 30 percentage points off Foster's gearing, which has soared to nearly 120 per cent, following last year's A$3.1 billion takeover of rival Australian winemaker Southcorp. The move led to an immediate upgrading in its credit rating by Standard & Poor's.

"This is a good deal for Foster's," said David Cooke at ABN Amro in Sydney. "It is realising good value for an underperforming asset and cleaning up some of the issues of the past."

He added that the deal was a boost to management at a time of continuing market concerns over the price paid for Southcorp and tough market conditions in wine. Despite speculation that Foster's might also sell its Asian beer operations, Mr O'Hoy made clear that the deal with S&N was a one-off.

"Foster's retains the brand ownership in the world's fastest growing beer markets. Outside of Europe, the market for beer is twice the size and is growing at two to three times the rate of within Europe," he said.