Beer Monopoly





  International Reports







Posted September 2010

Last drinks for Foster’s

An elegy to multi-beverage |Perhaps Foster’s brewers should have heeded folk wisdom and not mixed their beer with wine. As the saying goes, “Beer before wine, you'll be fine, wine before beer, sick for a year.” Everybody knows that a wine hangover is absolutely THE WORST. It means Death - without actually passing into the next world. But did they heed this advice? Obviously not. Having drunk themselves silly on over-priced wines, the leading Aussie brewer has suffered from a booming hangover for near on five years. They have tried every cure, including swinging a possum by the light of the waning moon. Still, the big-head blues wouldn’t go away. Now they have sworn never, ever to drink again … and called in sick. Foster’s is preparing a separate stock-market listing of its wine business, Treasury Wine Estates, valued at AUD 3.1 billion on Foster's books, or less than half what the company spent on wine acquisitions. Once the split is completed, the beer operation will probably be snapped up for a price of over AUD 12 billion. That will be the end of Foster’s as we know it, but, all considered, the only morning-after remedy left to them.

Long-time readers of Brauwelt will recall that we have had a soft spot for Foster’s as we followed the company’s permutations and transformations over the past decade. To us, Foster’s has always shown great staying power, resilience, derring-do. While brewers of similar size and scale were bought up in the great game called Mergers & Acquisitions, Foster’s proved very shrewd at staying one step ahead of its predators. As Allied Domecq, Scottish & Newcastle, Anheuser-Busch, to name but three, fell prey to takeovers, Foster’s managed to remain independent. We think that’s no small achievement for a stock-market listed, medium-sized company that has never enjoyed the benevolent backing of a major shareholder or a family. 

That’s why it saddens us to hear that Foster’s seems to have become a dirty word with analysts and investors. Mention Foster’s to bankers in Australia and they will just roll their eyes and say: “Oh no, you’ve still got shares in them? Get rid of them!”

Foster’s story shows what a cruel, unkind and dangerous playing field the financial markets are. Without memory or gratitude. Who cares or even remembers that a decade ago Foster’s was the markets’ darling? Feted, courted, written up. Once they stopped “delivering”, it was thumbs down. “Go split up and sell out”, that’s what they have been told. End of story. The dogs bark but the caravan moves on.

The rank and file of Australia’s brewers are a hardy lot. Maudlin, squeamish, delusional, they ain’t. They have always been out there, where the icy winds of globalisation blow, soldiering on, creating chances out of nothing. Those of us who are getting on in age will never forget that it was them who first went “global” in the 1980s – at a time when no one knew the word or even had an inkling that this would become the rule of the game for brewers trying to keep ahead of the pack.

Though Foster's predecessors date to the late 19th century, many sources trace the company's emergence as a major force in Australian business to the activities of one man, John Elliott. Through an astonishing series of acquisitions over the course of more than a decade, Mr Elliott assembled a major conglomerate, Elders IXL, using a jam company as its nucleus. In 1983 Elders took over Carlton & United Breweries Ltd. (CUB), best known as the maker of Foster's Lager.


Globalisation – take one

The rest of the 1980s was marked by a nonstop series of acquisitions in a variety of industries, including mining and investment banking. Despite Elders’ voracious and indiscriminate appetite, Mr Elliott liked beer best. In fact, he wrote the textbook strategy for global brewing companies out on the prowl. It read: “enter markets which show the highest profits.” That meant the UK, Canada, the United States. Interbrew/InBev may not like to have it rubbed in but they have only been following Mr Elliott’s lead, albeit more successfully.  

Ambitious and big-headed like InBev’s Brazilians two decades later, Mr Elliott thought big and bought big. All at hair-raising speed. The whole world shook its head and wondered, “Who's that punk and what’s he doing in my back garden?” as he launched attacks on Allied-Lyons PLC, a British beer and food conglomerate, four times the size of Elders (1985 – bid lapsed, though), Courage, England's sixth largest brewer with about 5,000 pubs (1986 – succeeded), Carling O'Keefe Breweries, the third largest brewer in Canada (1987 – succeeded) and formed a joint venture with Canada’s number two brewer Molson (1989), thus controlling 53 percent of the world’s sixth most profitable beer market.

At some stage in the 1980s, Elders also held a one percent stake in Anheuser-Busch. There was talk that Mr Elliott would mount a bid for Anheuser-Busch, but nothing came of that as acquisitions had expanded Elders substantially, from AUD 7 billion in 1985 to AUD 17.6 billion (EUR 12.7 billion) in 1989. At the end of the 1989s Elders was the largest Australian conglomerate and veritable national champion, but one where the strains of a decade-long, debt-funded acquisition spree were beginning to show.

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