Posted September 2010
Last drinks for
Foster’s
An elegy to multi-beverage |Perhaps Foster’s brewers should have
heeded folk wisdom and not mixed their beer with wine. As the
saying goes, “Beer before wine, you'll be fine, wine before
beer, sick for a year.” Everybody knows that a wine hangover is
absolutely THE WORST. It means Death - without actually passing
into the next world. But did they heed this advice? Obviously
not. Having drunk themselves silly on over-priced wines, the
leading Aussie brewer has suffered from a booming hangover for
near on five years. They have tried every cure, including
swinging a possum by the light of the waning moon. Still, the
big-head blues wouldn’t go away. Now they have sworn never, ever
to drink again … and called in sick. Foster’s is preparing a
separate stock-market listing of its wine business, Treasury
Wine Estates, valued at AUD 3.1 billion on Foster's books, or
less than half what the company spent on wine acquisitions. Once
the split is completed, the beer operation will probably be
snapped up for a price of over AUD 12 billion. That will be the
end of Foster’s as we know it, but, all considered, the only
morning-after remedy left to them.
Long-time readers of Brauwelt will recall that we have had a
soft spot for Foster’s as we followed the company’s permutations
and transformations over the past decade. To us, Foster’s has
always shown great staying power, resilience, derring-do. While
brewers of similar size and scale were bought up in the great
game called Mergers & Acquisitions, Foster’s proved very shrewd
at staying one step ahead of its predators. As Allied Domecq,
Scottish & Newcastle, Anheuser-Busch, to name but three, fell
prey to takeovers, Foster’s managed to remain independent. We
think that’s no small achievement for a stock-market listed,
medium-sized company that has never enjoyed the benevolent
backing of a major shareholder or a family.
That’s why it saddens us to hear that Foster’s seems to have
become a dirty word with analysts and investors. Mention
Foster’s to bankers in Australia and they will just roll their
eyes and say: “Oh no, you’ve still got shares in them? Get rid
of them!”
Foster’s story shows what a cruel, unkind and dangerous playing
field the financial markets are. Without memory or gratitude.
Who cares or even remembers that a decade ago Foster’s was the
markets’ darling? Feted, courted, written up. Once they stopped
“delivering”, it was thumbs down. “Go split up and sell out”,
that’s what they have been told. End of story. The dogs bark but
the caravan moves on.
The rank and file of Australia’s brewers are a hardy lot.
Maudlin, squeamish, delusional, they ain’t. They have always
been out there, where the icy winds of globalisation blow,
soldiering on, creating chances out of nothing. Those of us who
are getting on in age will never forget that it was them who
first went “global” in the 1980s – at a time when no one knew
the word or even had an inkling that this would become the rule
of the game for brewers trying to keep ahead of the pack.
Though Foster's predecessors date to the late 19th century, many
sources trace the company's emergence as a major force in
Australian business to the activities of one man, John Elliott.
Through an astonishing series of acquisitions over the course of
more than a decade, Mr Elliott assembled a major conglomerate,
Elders IXL, using a jam company as its nucleus. In 1983 Elders
took over Carlton & United Breweries Ltd. (CUB), best known as
the maker of Foster's Lager.
Globalisation –
take one
The rest of the 1980s was marked by a nonstop series of
acquisitions in a variety of industries, including mining and
investment banking. Despite Elders’ voracious and indiscriminate
appetite, Mr Elliott liked beer best. In fact, he wrote the
textbook strategy for global brewing companies out on the prowl.
It read: “enter markets which show the highest profits.” That
meant the UK, Canada, the United States. Interbrew/InBev may not
like to have it rubbed in but they have only been following Mr
Elliott’s lead, albeit more successfully.
Ambitious and big-headed like InBev’s Brazilians two decades
later, Mr Elliott thought big and bought big. All at
hair-raising speed. The whole world shook its head and wondered,
“Who's that punk and what’s he doing in my back garden?” as he
launched attacks on Allied-Lyons PLC, a British beer and food
conglomerate, four times the size of Elders (1985 – bid lapsed,
though), Courage, England's sixth largest brewer with about
5,000 pubs (1986 – succeeded), Carling O'Keefe Breweries, the
third largest brewer in Canada (1987 – succeeded) and formed a
joint venture with Canada’s number two brewer Molson (1989),
thus controlling 53 percent of the world’s sixth most profitable
beer market.
At some stage in the 1980s, Elders also held a one percent stake
in Anheuser-Busch. There was talk that Mr Elliott would mount a
bid for Anheuser-Busch, but nothing came of that as acquisitions
had expanded Elders substantially, from AUD 7 billion in 1985 to
AUD 17.6 billion (EUR 12.7 billion) in 1989. At the end of the
1989s Elders was the largest Australian conglomerate and
veritable national champion, but one where the strains of a
decade-long, debt-funded acquisition spree were beginning to
show.
Interested in reading the rest of this report? Then you’d better
subscribe to Brauwelt International. Read on
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