UPDATE 3-Bidders seen circling as Foster's wine spin-off sparkles

* Treasury Wine ends day 1 worth $2.3 bln

* To focus on global growth in brands

* Analysts value shares between A$2.76 and A$3.50

* Both beer and wine units seen as potential takeover targets

* Combined Foster’s, Treasury market value up 3.2 pct (Releads, adds No.2 shareholder comments)

By Sonali Paul

MELBOURNE, May 10 (Reuters) - Australia’s top brewer Foster’s Group and its unit Treasury Wine Estates just grew more expensive for potential suitors, following a strong debut for the wine group on the Australian bourse on Tuesday.

Foster’s spun off Treasury Wine Estates to its shareholders to boost value after failing over the past decade with a costly expansion into wine that resulted in nearly A$3 billion in writedowns.

The world’s second-largest wine company, with vineyards from Hunter Valley near Sydney to California’s Napa Valley, ended its first day on the board with a market value of A$2.18 billion ($2.32 billion), near the top end of broker valuations.

At the end of the day, shareholders in the two separate companies were already 3.2 percent ahead, against a broader market that fell 0.7 percent.

“You could declare the demerger on day one a success,” said Matthew Williams, Australian equities manager at Perpetual Investments, the second-largest shareholder in Foster’s and Treasury Wine Estates with a 5 percent stake.

“It’s justified the shareholder push to the board to go through this process,” he said.

Since Foster’s announced it would split its underperforming wine unit from beer last year, both businesses have been the subject of takeover talk, with analysts saying any potential offers would only likely emerge after the official split.

Eight percent of Treasury Wine Estates’ shares traded on Tuesday, showing Foster’s shareholders who received the shares were mostly holding on to them.

“At this stage, we’ll give them the benefit of the doubt, at least in the short term,” said Jason Beddow, chief executive of Argo Investments, a top 20 shareholder, adding that the fund has yet to decide what to do with its Treasury Wine shares.

He noted that over the past 10 years, Australian company break-ups, such as explosives maker Orica’s spin-off of the Dulux paints business and building materials maker Boral’s spin-off of Origin Energy , on average had added value for shareholders.

Treasury Wine Estates, which ranks behind Constellation Brands in global wine production, opened at A$3.21 and closed at A$3.36, the top end of the day’s trading.

Foster’s fell to A$4.53, valuing it at A$8.79 billion, for a combined market capitalisation worth A$340 million more than Foster’s before the split.

Macquarie analysts warned that in the absence of any takeover offers, the split of Foster’s would destroy value for shareholders, as beer has slim growth prospects and the wine group faces strong headwinds from a soaring Aussie dollar.

The rocketing Aussie dollar , trading just below 29-year highs, could also scare off potential bidders.

“I think the fact that the Aussie dollar is up quite strongly in the last six months would be some kind of deterrent,” said Perpetual’s Williams.

Treasury Wine Estates Chief Executive David Dearie laughed off a question from reporters on how soon the company expected to receive a takeover offer.

Private equity groups are seen as the most likely bidders for the wine group, following the rebuffed approach last year from Cerberus Capital Management .

Possible suitors include Kohlberg Kravis Roberts & Co and TPG , which were rumoured to have looked at the business last year.

Foster’s is expected to attract interest from companies such as world No.2 brewer SABMiller as the Australian company is seen as one of the last big prizes in a globally consolidating industry.

China’s Tsingtao Brewery Co Ltd last week said it was not involved in bidding for Foster’s beer operations, while Japan’s Asahi Breweries said in February it has no interest in buying any part of Foster’s.


Treasury Wine Estates has A$1.9 billion in revenues and its brands include Beringer, Penfolds, Lindemans and Wolf Blass.

Top executives said the company would focus on turning itself into a global business, running more efficiently than within Foster’s, where wine was split into four regional units.

“As a separate company, and no longer the poor cousin of Foster’s, it has a great opportunity,” Treasury Wine Estates Chief Financial Officer Mark Fleming told reporters ahead of the company’s launch on the Australian Securities Exchange.

Fleming was poached from top Australian grocer Woolworths , where he was chief financial officer for the supermarkets division, one of Foster’s and Treasury Wine’s biggest customers.

Dearie said the group aims to use its brands to grow all over the world, pointing to China as one targeted area.

UBS forecast Treasury Wine shares would trade between A$3.00 and A$3.50 a share, based on the group’s tangible book value of A$1.97 billion and a private equity bid worth up to A$2.5 billion which Foster’s rejected last year.

Other brokers had valuations on the wine business between A$2.76 and A$3.50. ($1 = 0.926 Australian Dollars) (Editing by Dhara Ranasinghe and Vinu Pilakkott)