Blog: Chris Brook-CarterFoster's Millions

Chris Brook-Carter | 18 August 2003

Now Foster's has decided to spin off its Australian Leisure & Hospitality division it will probably be sitting on more than A$1.4 billion. Its problem now - and I am sure many companies would like to be faced with a similar dilemma - is what to with the cash.
Everyone but Foster's seems to be voicing an opinion and if the company's boss Ted Kunkel is following the press he will have been bombarded now by countless whys, wheres and hows.
The primary division in opinion though is whether to expand his wine empire or not. If not then the options reduce significantly and we may see the company invest in a share buyback, debt reduction or capital return to shareholders.
But frankly that all seems a bit dull. Quite apart from the selfish reasoning that debt reduction just doesn't make good editorial, I can't get my head round the idea that a company of Foster's international scale and ambition would go to all the trouble of selling off such a significant part of its business not to build a war chest for acquisitions.
And neither does the idea that wine does not represent a good investment cut much sway for me. Certainly the industry is under more pressure now than at any time in the last decade, but its long term potential still remains real. Wine is a long term business - a notion lost on investors and analysts all too often - prone to short term fluctuations in fortune. But I can't imagine too many of BRL Hardy's initial investors complaining about the ROI prospects of a well run wine business.
So just to add to the stream of predictions, my money is sitting on a US wine acquisition, perhaps Brown-Forman's wine division or Kendall-Jackson. The other option is Southcorp, but the Oatley family involvement makes any deal more complicate than either of the above, while the domestic market holds none of the potential of the US.

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