Foster's has taken a solid first step towards tidying up its ailing international brewing business with the sale of the Foster's brand outright in Europe to Scottish & Newcastle for GBP309m (US$538m).

The Australian drinks giant's licensing deal with S&N was arguably one of the most one-sided in the drinks industry, struck in 1995 when, as current Foster's president and CEO Trevor O'Hoy put it, the company was in "financial difficulties".

It must have stuck in O'Hoy's throat that under the deal Foster's only received a fixed annual payment of around GBP13m, no matter how well the brand was performing in Europe. Indeed, sales of Foster's have been so buoyant that the brand accounted for 14% of all beer sold by S&N last year.

Yesterday's deal - warmly welcomed by the markets - was a further example of how O'Hoy has moved to revamp the Foster's business and switch the company's focus to more profitable activities, since he took charge in March 2004. As one analyst put it, the deal is "symptomatic of the more robust portfolio management approach being taken by O'Hoy".

Under O'Hoy's stewardship, Foster's under-performing US wine operations have returned to growth, its organisation has been restructured and streamlined, non-core assets have been sold and a global supply chain has been set up to improve the company's route to market. The most notable event of O'Hoy's tenure, however, has been last year's acquisition of domestic rival Southcorp, a deal that gave Foster's a seat at the top table of global wine producers.

Foster's seems to be increasingly focusing on wine and the GBP309m from the S&N deal will bolster its balance sheet, while it should also help with the integration of Southcorp's operations. The S&N agreement also provides Foster's with greater financial muscle should it decide to make another acquisition in an ever-consolidating wine market.

Constellation Brands' move last week to snap up Vincor International and strengthen its position as the world's largest wine company would have been noted in Melbourne with some interest, given Foster's ambitions as a global wine player. And with Foster's looking to sell off its Asian brewing assets, its ability to add to its wine portfolio will grow stronger.

The sale of its brewing operations in India, China and Vietnam looks to be next on O'Hoy's 'to do' list. Foster's insisted yesterday that it remained "absolutely committed" to growing the Foster's brand in Asia. However, although its operations in the region have seen some recovery, Foster's has long been dissatisfied with the returns in those markets. In the year to 30 June 2005, the company reported EBITA of A$44.4m (US$32.5m) from its international brewing arm. That contrasted sharply with the A$577.7m Foster's generated from Carlton & United Beverages, its domestic beer business.

The impending sale of the Asian operations has been widely known in the industry for months, with S&N and SABMiller touted as likely bidders for some, if not all, of the assets up for grabs. However, the announcement of yesterday's deal with S&N may have changed opinions on who is to bid for Foster's assets in Asia. S&N's chief executive Tony Froggatt played down any suggestion that the UK's largest brewer was set to table an offer for the breweries - or strike a licensing deal in Asia for the brand.

"This is something we're not thinking about at this time," Froggatt told a conference call yesterday. "(Europe) is the area that we really wanted. We have enough on our plate here in terms of opportunities, so we'll stick with this for the moment."

Froggatt's comments - coupled with those made to just-drinks in recent weeks by Lesley Jackson, the CFO of S&N's partner in India, United Breweries (UBL) - suggest that SABMiller may be the front-runner in the Foster's auction.

Were S&N to miss out, it would arguably have little impact on its progress in India where UBL is performing well, but may represent something of a missed opportunity in China. Buying the Foster's brand in Asia could help S&N gain a stronger presence in China, where the brewer only has a small foothold in the west of the country through its partnership with Chongqing Brewery.

Nevertheless, gaining full European rights to the Foster's brand is a good deal for S&N. It gives the brewer full control over a buoyant brand and will help speed up the roll-out of a raft of new product ideas surrounding the brand to keep sales growing. S&N also gains control of the Foster's brand in Turkey, Russia and parts of the CIS, where demand for beer - and in particular for premium brands - is continuing to rise.

Yesterday's deal tidied up a decade-long deal struck when one party was struggling, but leaves both looking ahead with confidence.