Foster's Group said Wednesday that it had rejected an unsolicited bid from an unidentified private equity firm offering from 2.3 billion to 2.7 billion Australian dollars for its wine business, which it said it planned to spin off from its beer operations.
The nonbinding cash bid, equivalent to $2.1 billion to $2.5 billion, "significantly undervalues Treasury Wine Estates and its future prospects," Foster's said, while maintaining that it was committed to a separate listing of the two beverage businesses. Foster's declined to reveal the bidder's identity.
"This puts the whole company in play. If you are one of the big brewers, you probably didn't want to be saddled with a wine business you didn't understand or want," Tom Elliott, managing director of hedge fund MM&E Capital, told Reuters.
The company's shares rose 27 cents, or 4.45 percent, to 6.34 Australian dollars on the Australian Securities Exchange.
Though best known for its beer, Foster's has a major stake in the wine industry. In Sonoma County, it owns Chateau St. Jean and its Napa Valley properties include Beringer Vineyards, St. Clement, Etude and Stag's Leap Winery. Other well-known brands include Australia's Lindemans, Penfolds and Rosemount and Italy's Castello di Gabbiano.
Foster's, the largest alcoholic beverage maker in Australia, said in May that it planned to list its beer and wine operations separately so that they could each develop their own corporate strategies.
SABMiller and Asahi Breweries have both shown interest in Foster's beer operations, worth about $10 billion, The Sunday Times and Reuters reported last month.
The wine business is thought to be worth considerably less, as it faces greater competition at home.
The unit "continues to be impacted by oversupply in Australia, subdued consumer demand in key international markets and a strong Australian dollar during the 2010 financial year," Ian Johnston, chief executive of Foster's Group, said in May.
"Wine still has an enormous agricultural cycle — that is the problem — and fragmentation in the market," Gerard Rijk, beverage analyst at ING Commercial Banking. "Of course, this is a very good business, but there is volatility."
Foster's has spent about $6.4 billion on its wine business in recent years, and "they'll never get all of it back," Rijk said.
Still, the bid announced Wednesday may have severely misjudged the value of the wine operations. Rijk estimated the unit would sell for between $3 billion and $4 billion.
"There's always sentiment when purchasing wine assets," he said.
Goldman Sachs analysts valued the unit at about $3 billion, saying that "to the extent the wine business was previously viewed by some as a &‘poison pill', the expression of interest in the wine assets from private equity might provide some comfort pre-demerger to any companies which have an interest in the beer assets."