In the spotlight: Trevor O'Hoy

By | 13 June 2008

Trevor O'Hoy tended his resignation as chief executive officer of Fosters this week (10 June) after 33 years tenure with the company. His resignation, although sudden, comes amid a period of trying times for the Australian drinks giant, who has just issued a profits warning and a write-down of AUS$770m of assets following a poor performance in its wine business.

O'Hoy's resignation, after only four years at the helm, has come at a time when the company has begun a strategic review into its wine business after US sales were hit by a sharp appreciation in the Australian dollar and unacceptable returns from wine assets impacted severely on the company's bottom line.

When O'Hoy took over as CEO in 2004, Foster's US$2.5bn acquisition of the US wine maker Beringer Wine Estates in 2000 was already badly underperforming, due to a glut of quality grapes, which allowed low-price winemakers to undercut them.

Then came the acquisition of domestic wine maker Southcorp in 2005 for US$3.7bn, a move which appears to have led to O'Hoy's undoing. He has taken responsibility for a strategy that, he said, only months after taking control, was not his first choice.

In tendering his resignation, he said that it is "time to stand aside and allow the next generation of management to lead the business forward".

Yesterday (11 June) he said: "I don't think any time in my career I've done anything that I did not believe was in the best interests of Foster's shareholders."

"It's clear I haven't got every decision right, but the decision I made last weekend was in the interests of Foster's shareholders.

In a conference call this week, chairman David Crawford confirmed that O'Hoy took full responsibility for the company's write-downs.

"[O'Hoy] believes it is appropriate that he resigns and allows a new management team to come in. He takes responsibility as CEO for where the company is," he said. O'Hoy has agreed to stay on, however, to facilitate an orderly transition until the appointment of his successor, for which Foster's said it would look globally both internally and externally.

However, long-time critic of the Southcorp deal, Intelligent Investor research director Greg Hoffman, said shareholders should be outraged that only O'Hoy resigned.

"Shareholders should think carefully about re-electing any of the board members who oversaw this national disgrace," Hoffman told the Daily Telegraph this week. "These include current chairman David Crawford and other board members Lyndsey Cattermole, Max Ould and Graeme McGregor. Directors of this Australian icon have enjoyed a collective pay increase of 59% from 2004, the year before the disastrous Southcorp deal, to 2007," he said.

Crawford did, however, concede that the company had overpaid for Beringer and Southcorp and said that the review would consider "all alternatives".

"The reality is, we did not execute the Southcorp integration as well as we expected and operations are now more challenging," he said. "We must also recognise and acknowledge that we paid too much to acquire wine assets.

While a strategic review of the business is being undertaken and "all options are being considered", this leaves Foster's successful beer business exposed to a buyout from an industry giant such as Heineken or SABMiller.

Foster's has refused to rule out a sale of the wine assets and Crawford said the review would "examine all options".

Many analysts agree that the likelihood of the company selling its wine business is unlikely before the end of the year, when the review of the wine business is complete and another CEO has been appointed.

Speculation of internal replacements has included chief strategy officer David Bortolussi or Australia and Asia-Pacific managing director Jamie Odell.

Externally, analysts at UBS say an international brewing executive could be a good match and has named Tony Froggatt (former CEO of Scottish & Newcastle), John Dunsmore (who succeeded Froggatt at S&N), Dan O'Neill (former Molson Coors Brewing exec), Leo Kiely (CEO of MillerCoors) and Tom Long (who heads Miller), as possible contenders.

It is an interesting notion and one that Foster's will need to make quickly if it is to save its flailing business.

In the meantime, the former St Kilda footballer, who worked his way up from a cadet at Carlton and United Breweries to the top job at Fosters, has now exited stage left. It would appear, then, that it took O'Hoy 33 years to realise what we were all taught as youngsters: You shouldn't mix your drinks.

Sectors: Beer & cider, Wine

Companies: Foster’s, Heineken, SABMiller, S&N, Molson Coors, United Breweries

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