Foster's Group, Australia's largest brewer, rejected a private equity offer worth up to $2.5 billion for its wine business as too cheap, sending its shares up as much as 6 per cent on hopes of higher bids.
Investors were surprised by the approach for the world's second-largest wine business, which has cost Foster's billions of dollars in writeoffs and is now being split from the lucrative beer business.
It also raised speculation that suitors for the combined group, which has a market value of about $11 billion, might now step forward.
"This puts the whole company in play. If you are one of the big brewers, you probably didn't want to be saddled with a wine business you didn't understand or want," said Tom Elliott, managing director of hedge fund MM&E Capital.
"Now you know there are potential buyers out there, you can make a bid for the whole company knowing that you can offload the wine business to private equity or someone else," he said.
Investors have been focusing on potential buyers for the beer business, which enjoys some of the highest profit margins in the brewing world.
Late last month, sources said brewing groups SABMiller and Japan's Asahi Breweries were looking at the company's beer operations, valued at more than $10 billion, but no firm bids have emerged.
Sales of Foster's wine, including Beringer, Penfolds and Wolf Blass, have been hit by a deep U.S. recession and a trend away from low-end, bulk wines in Australia. The strong Aussie dollar has also been a drag, slashing the value of U.S. earnings.
Foster's shares closed up 4.5 per cent at A$6.34 on volume almost four times its average over the past 30 days in a broader market down 0.8 per cent.
The wine business, known as Treasury Wine Estates, is valued at A$3.1 billion on Foster's books, or about half what the company spent on wine acquisitions in a rapid expansion as it sought to offset flat demand for beer.
Foster's spent over A$6 billion building its wine business, which ranks behind Constellation Brands Inc, with its acquisitions of California's Beringer Wine Estates in 2000 and Australia's Southcorp in 2005.
Foster's has been overhauling the wine unit over the past year, selling unprofitable vineyards, changing US distributors and focusing on higher-margin wines above $8 a bottle.
Analysts value the business at A$1.7 billion to A$3.5 billion.
Foster's was formed in the 1880s, when the first Foster's Lager was brewed - becoming one of Australia's top brands - and the Mildara Winery was established.
Foster's said the offer, worth A$2.3 billion-A$2.7 billion, was highly conditional and requested exclusivity, which it said reduced the value of the proposal. The offer "significantly undervalues" the wine business and its future prospects.
A deal for the wine unit would have been the largest buyout by a private equity firm in the Australian market since 2007.
The major international private equity firms represented in Australia either declined to comment or did not return calls. They included Blackstone, KKR, Carlyle, TPG and CVC. Bain & Co in New York did not return calls seeking comment.
International private equity firms have shown renewed interest in cheap Australian assets this year, snapping up hospital owner Healthscope in July for A$2 billion.
Foster's spokesman Troy Hey declined to comment on the identity of the suitor, because the matter was confidential.
Reuters