Focus on Foster’s sober brewery CEO in takeover drama

By Victoria Thieberger

MELBOURNE (BestGrowthStock) – Foster’s (FGL.AX: ) Chief Executive Ian Johnston will have to steer through troubled waters to find a buyer willing to pay up for his underperforming wine business while holding onto the lucrative brewery operations.

Australia’s largest brewer has rejected a private equity offer worth up to $2.5 billion for the wine unit as too cheap and said it would continue the planned splitting of its beer and wine businesses.

But analysts said the low-ball bid indicated that Johnston, Australia’s youngest ever Olympian — he was a cox in the 1960 Rome Olympics at 13 years — may well end up selling both the wine and the brewing business in the months ahead.

Since taking the rudder at Foster’s two years ago Johnston, who has been described as focused and as joyless as a stern headmaster, has been trying to turn around the wine business and end the leadership turnover in beer. Foster’s ran through a six-pack of chief executives in seven years.

Foster’s planned to spend most of this year splitting the beer and wine operations — a complex process that also involves untangling debt arrangements and tax obligations — before listing them separately on the Australian Stock Exchange in 2011.

But by revealing that it rejected the approach from an unnamed private equity firm for its Treasury Wine Estates business, both beer and wine would now seem to be in play.

FOCUSED ON DEMERGER

Johnston had said last month the board was strictly focused on the proposed demerger and he was not entertaining the idea of selling beer or wine ahead of that.

“It is impossible for me to talk about hypotheticals,” the sober-minded brewery chief said on August 24 after presenting annual profits that included the third massive writedown for wine, of A$1.3 billion.

At that point, all the speculation was firmly on buyers for the beer operation, Carlton & United Breweries, expected to fetch over A$12 billion. Possible bidders for beer include brewing groups SABMiller (SAB.L: ) and Asahi Breweries <2502.

Investors say the offer for wine could clear the path for a takeover for the entire group.

Foster’s shares have been trading in the A$5 range for much of the time since it bought Australian wine producer Southcorp in 2005, for which it paid A$3.7 billion at the top of the market for brands including Penfolds and Rosemount.

“Johnston and the board know they have got to get the share price up one way or another and whether it is via a takeover or a demerger, shareholders don’t care,” said Tom Elliott, managing director of hedge fund MM&E Capital which takes stakes in merger situations. He does not reveal shareholdings.

THE RELUCTANT CEO

Johnston came out of semi-retirement in July 2008 to become acting CEO when Trevor O’Hoy quit after a writedown of A$770 million for wine, the second of three writedowns totaling some A$3 billion.

“Wine has been the most hideous investment and they have written off billions,” Elliott said. “The demerger is just rattling the cage to get some sort of takeover premium.”

Before Foster’s, Johnston spent 19 years at Cadbury Ltd in the UK and Australia. He started out as a salesman for Gillette razors.

He said when he took over as acting CEO at Foster’s that he was not on the short-list of candidates for the top job, but the board eventually persuaded him and he took the job on a permanent basis in September 2008.

He is acutely aware of the image problems of many of Foster’s cheaper and bulk wine labels, and last year blamed Australian TV comedy duo Kath and Kim for damaging the image of chardonnay, which they mispronounced as “cardonnay.”

If he does end up selling both the beer and wine businesses, the accidental CEO will have put himself back into retirement.

(Reporting by Victoria Thieberger; editing by Bill Tarrant)

Focus on Foster’s sober brewery CEO in takeover drama