Foster's sells brand in Europe

SYDNEY - Australia's biggest beer and wine maker Foster's Group said yesterday it had sold its brand in Europe to its brewing and distribution partner Scottish & Newcastle for A$750 million ($900 million).

Foster's shares surged 17c to A$5.67.

Foster's, which plans to use the sale proceeds to pay debt, told the Australian Stock Exchange the deal would result in a one-off gain of around A$650 million after tax.

The brewer said it would continue to own its brand in other markets, but the licensing agreement entered into with Scottish & Newcastle in 1995 had locked it into below market returns from its European beer sales.

"If you look at the way that they've been struggling in getting additional revenue and earnings from their European sales, it certainly seems like a positive deal for them," Commonwealth Securities food and beverages analyst Pierre Grobler said.

Foster's overseas brewing division made earnings before interest, tax and amortisation (EBITA) of A$44.4 million in the year to June 2005, dwarfed by its A$577 million of earnings from its domestic beer divisions.

Foster's chief executive, Trevor O'Hoy, said the agreement entered into with Scottish & Newcastle in 1995 was in perpetuity and the royalties stream was at about half the level that would be entered into today.

"The royalty economics of that deal, which was struck at a time when the Foster's Group was in financial difficulties, have unfortunately not matched the dramatic growth of the brand in the region," he said.

O'Hoy said that the company received royalties under the Scottish & Newcastle deal of about A$37 million.

But he said the loss of that revenue stream would be largely offset by the decision to end its Formula One motor racing sponsorship, aimed at the European market, and the company would also save on corporate costs.

O'Hoy said the firm would look at promoting its other brands in Europe, such as its major domestic seller Victoria Bitter, and would continue to receive Foster's revenues from other expanding international beer markets.

"Foster's retains the brand ownership in the world's fastest-growing beer markets. Outside of Europe, the market for beer is twice the size and is growing at two to three times the rate of within Europe," O'Hoy said.

- REUTERS