Foster's looking to sell overseas breweries

Australia's biggest beer and wine maker Foster's Group Ltd is seeking to sell its overseas breweries for up to A$200 million ($234 million), sources close to the situation said today.

The disposal is likely to attract interest from groups such as Scottish & Newcastle Plc and SABMiller Plc, as international brewers seek to gain from fast-growing Asian beer markets.

Foster's, whose amber nectar is one of Australia's most heavily promoted overseas brands, is looking to focus on its domestic beer business and its expansion into wine.

The Melbourne-based group is looking to sell its international side, with operations in India, Vietnam, China, Fiji and Samoa, but wants to keep control over the brand and collect royalty streams, as in Europe, the sources said.

Foster's spokesman Troy Hey declined comment on a possible sale. "All we can say is that they (the Asian breweries) are performing very well. We have a complete commitment to the Foster's brand in Asia," he said.

S&N and SABMiller declined to comment.

The two British-based brewers, S&N and SABMiller, are seen as leading contenders in an auction due to their existing Foster's relationships. The former controls the brand in Europe and the later in the United States. Both are also keen to expand in Asia.

Other big brewers such as Heineken and the world's largest brewer InBev are also likely to be interested, but the brewing of Foster's beer under licence may conflict with their own beer brands, the sources said.

"The Foster's overseas business could be worth A$100 million but also a lot more due to the shortage of available assets in Asia," said one industry source, while another source put the value on the business at between A$100 and A$200 million.

Foster's has long since given up its vision of a global beer maker, selling off brand rights in the United States and Europe. Outside Australia it retains just one brewery each in China and India, two in Vietnam and breweries in Fiji and Samoa.

ABN Amro analyst David Cooke, based in Sydney, said Foster's Asian operation was small so it could make sense to sell the breweries and get someone else to brew Foster's on its behalf.

"If someone else could do it better, I'd argue that they need to either get big or get out," he said.

Foster's overseas brewing made earnings before interest, tax and amortisation (ebita) of A$44.4 million in the year to June 2005, dwarfed by the A$577 million from its domestic brewing. The sources estimate that at least half of that overseas profit comes from licence income from Europe and the United States.

The company does not break out international beer earnings from each region, but says India and Vietnam are profitable and China is close to breaking even.

The jewel of Foster's Asia operations is India, where it operates a brewery at Aurangabad, 300km northeast of Mumbai. While beer consumption in India's 1 billion-plus population is low -- of less than one litre per person a year -- it is growing rapidly and interesting the big brewers.

SABMiller with around one third of India's beer market has been expanding recently on the sub-continent, while S&N is a leading player with its 37.5 per cent stake in Kingfisher brewer United Brewers Ltd , which controls half the market.

Vietnam is one of the world's fastest growing beer markets and the globe's No 2 brewer and maker of Miller Lite and Castle, SABMiller, set up a joint venture there in January.

S&N, the brewer of Kronenbourg and Foster's beer in Europe, has a minor presence in Asia through India and a small joint venture in China, while SABMiller is the second largest brewer in the world's biggest beer market, China, in addition to its India and Vietnam businesses in Asia.

"S&N has a closer relationship with the Foster's group through its links in Europe, but SABMiller as the bigger group has the deeper pockets," said one banking source.

Foster's embarked on a major expansion in wine with its US$1.6 billion ($2.5 billion) purchase of Californian-based Beringer in 2000, then added Australia's largest wine maker Southcorp in 2005 for A$3.2 billion, bringing in Penfolds, Rosemount and Lindemans wine brands to make it the world's No 2 wine company after US-based Constellation Brands Inc.

- REUTERS