SYDNEY Shares of Australian brewer Foster's Group FGL.AX jumped as much as 8.7 percent on Wednesday after the company revealed plans demerge its beer and wine operations, leading investors to expect takeover approaches.
Foster's plan to split its struggling wine business from its well performing beer unit, likely to be completed in the first half of 2011, would yield about A$100 million in annual savings from 2011 and give it much needed flexibility, the firm said.
The wine business, facing oversupply and weak demand, has weighed on Foster's and the company will take a non-cash after-tax impairment charge of A$1.05-1.2 billion in fiscal 2010 on wine assets, possibly forcing a delay in dividends.
"Foster's has been touted as takeover target for a while but wasn't touched so far because of its wine business. Now the separation clears that," Chris Weston an institutional dealer at IG Markets said.
Foster's shares surged to a three-month high in early trade and were up 7 percent at A$5.51 at 0045 GMT (8:45 a.m. EDT), outperforming the broader market's 1.8 percent gain.
Fund managers viewed the announcement as positive, including Foster's prediction that its earnings before interest, taxes, depreciation, amortization and significant items, or EBITS would be around A$1.05-1.08 billion for the year to June 2010, in line with expectation.
"We are increasingly seeing the benefits of operationally separating the beer and wine businesses," Chief Executive Ian Johnston said in a statement.
Foster's said the separation of the beer business, which controls half the Australian market, and the second largest wine business, will allow investors to appropriately value the two business and give the two firms the flexibility to chart their own growth.
Analysts have speculated the restructuring will lead to an eventual sale of the wine business while Foster's has said it was focused on improving wine performance and keeping its options open.
Earnings from wine, which accounted for 40 percent of group earnings as recently as three years ago, slumped by nearly a quarter amid tough trading conditions in the six months to December.
The company has completed about half its planned sale of vineyards and eliminated 39 non-core wine brands.
The wine business has been the biggest drag. Fosters July-December net profit fell 13.5 percent to A$355.7 million ($316 million), Its weakest first-half profit since the six months to December, 2005.
(Reporting by Balazs Koranyi and Narayanan Somasundaram)