Fosters rejects $2.7b wine offer

GLOBAL beverages firm Foster's Group Ltd has received and rejected a non-binding proposal to buy its Treasury Wine Estates wine assets for $2.3 billion to $2.7 billion.

Foster's said on Wednesday that it had rejected an unsolicited expression of interest from an international private equity firm.

The Foster's board said it believed that a proposed separation of the wine business from Foster's beer business, through a demerger, was still the best outcome for shareholders.

The indicative proposed value range "significantly undervalues" Treasury Wine Estates and its future prospects, Foster's said in a statement.

"The high level of conditionality, the requirement for exclusivity and other terms of the proposal are considered to reduce the value and certainty of the proposal.

"The board of Fosters believes that Treasury Wine Estates is well positioned to grow over the coming years and thereby create additional value for Foster's shareholders."

A Foster's spokesman declined to identify the private equity firm behind the expression of interest because the proposal had been made confidentially.

The spokesman said the Foster's board had considered and rejected the proposal early on Wednesday morning.

Analysts have valued Treasury Wine Estates at around $2.9 billion, excluding a premium for control of the assets.

In August, Foster's reported a net loss of $464.4 million for 2009/10, compared to a net profit of $438.3 million in the prior year.

The result included a previously flagged non-cash impairment of $1.16 billion against the carrying value of the group's wine assets.

Foster's sold less beer and wine by volume as consumer sentiment in the beer market softened and market conditions in the wine sector were mixed.

Foster's said market conditions in the wine business remained mixed, with oversupply in the Australian market, a subdued consumer environment in key international markets, and the strength of the Australian dollar expected to continue to affect the business.

Earnings from Treasury Wine Estates fell 27.2 per cent to $221.3 million, with unfavourable exchange rates having a major impact.

On a constant currency basis, earnings rose 20.5 per cent, with earnings more than doubling in the second half.

Wine volumes dipped in Australia and New Zealand as the company exited the cask wine sector and dumped 37 "tail" brands.

Foster's said on Wednesday that Treasury Wine Estates had been making significant progress in implementing a transformation program.

Foster's said it remained committed to the evaluation of issues, costs and benefits of a potential demerger, with work progressing to schedule.

"However, the board will continue to consider any proposal that is in the best interests of shareholders," Foster's said.

Foster's shares closed on Tuesday at $6.07.