Blog: Olly WehringUS: Constellation sale Foster's rumours

Olly Wehring | 13 January 2009

Readers should approach with caution a flutter of speculation that Constellation Brands' sale of its "value" spirits portfolio means it is eyeing a bid for Foster's wine division.

For what it's worth, we believe a bid for the whole division is unlikely for a number of reasons.

Constellation CEO and president Rob Sands said during a results conference call last week that key priorities for this year would be reducing debt and "bringing home the bacon" on previous acquisitions, emphasising an inward focus during 2009.

Debt repayments would be partly achieved by disposing of under-performing business units, Sands stated. Yesterday's (12 January) announced spirits brands sale, totalling US$334m, appears to fit this model very snugly.

Constellation needs to repay debt and there looks to be little room in the company's acccounts for manoeuvre on acquisitions at present. Sands said as much last week when he stated that the firm would not chase acquisitions, although he pointedly declined to rule them out.

All this comes six months after Constellation announced an A$154m restructure of its Australian unit, including the sale of three of its ten vineyards in the country.

Should talks emerge between Foster's and Constellation in the near future, it looks much more likely that the California firm would be interested in picking out individual brands - which include Penfolds, Rosemount and Wolf Blass - rather than the whole business. 

The last thing Constellation needs is another few barrels of average Australian wine, but individual brands could add value to the group's bottom line.

Foster's is expected to announce the results of its strategic review on the wine business next month, with industry sources maintaining that the group is keen to sell.

However, several analysts have said that a sale could be delayed by poor economic conditions, which has curtailed companies' access to credit for M&A activity.


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