BREAKFAST DEALS: Foster's wine spill

Send your tips to deals@businessspectator.com.au and don't forget to watch Deals TV for new rumours and reports later on this morning. Plus, you can follow us at www.twitter.com/WheelsDeals

The global beverages industry is looking for the next major acquisition and it looks likely to be Foster's, which yesterday sold the first of what could be all of its wine assets, a move thought to be a precondition to a deal.

Foster's Group

With the dust settling on Kirin's takeover of the remaining share of Lion Nathan and in the wake of Dublin-based C&C Group's purchase of Anheuser-Busch InBev's Tennent's Lager business, the global beverages industry is looking at Foster's Group as the next likely takeover target. We've been told that a deal is imminent for Foster's and if true then yesterday's sale of the Cumbandry vineyard near Mudgee in NSW could be the first part of a complete sale of the old Southcorp assets, something seen as a precondition to a deal. We should also mention that Anthony Heraghty, Foster's head of global marketing and the brains behind Carlton Draught's Big Ad and VB's Regulars campaign, has just resigned. Foster's acquired the Southcorp wine business four years ago for $3.2 billion but found it strategically difficult to integrate and financially difficult to justify. Interestingly, the 862 hectare Cumbandry has been sold to Bob Oatley, who originally sold his 18.8 per cent share in Southcorp to Foster's as a prelude to the full takeover. Oatley also owned Cumbandry in the past, before he sold it to Southcorp in 2002. The value of the Foster's sale has not been disclosed, but it is believed to be below original estimates considering that Foster's is struggling to sell the other vineyards it flagged for disposal in February this year. Foster's wine division has also continued to struggle against a rising Australian dollar and perceptions in overseas markets of Aussie plonk's poor quality, as Robert Gottliebsen points out.

Nevertheless Foster's continues to persevere with the sales and the global beverages industry continues to consolidate, making the beer assets of Foster's look more and more attractive. Foster's has been named as a top target by ING analysts alongside Grupo Modelo, Efes Breweries and Beijing Yanjing Beer Group. Japan's Asahi Breweries has an especially good reason to be interested in Foster's, competing with Kirin, which not only now owns all of Lion Nathan and National Foods, but is merging with Suntory to become Japan's largest drinks maker. Suntory has also done a deal to buy Orangina Schweppes, the mainly European soft drinks group that owns rights to the same schweppervescence that Asahi bought off Cadbury in Australia for $1.2 billion around Christmas time last year. Asahi must feel especially cornered with deals of this magnitude playing out and with indeed Cadbury itself being offered $US16.7 billion by Kraft, Asahi can only wonder for how long the food and beverage M&A machine will keep grinding. Other possible contenders for Foster's include Molson Coors, with a minority stake, and SABMiller, which has done a number of distribution deals with Foster's. Each party has its own reasons, but most of all, global brewers are thirsty for dependable brands in the face of changing consumer patterns and tighter competition.

Consumer products

Elsewhere in consumer products, Woolworths' recently announced deal to buy Danks Holdings and enter the big box hardware market in partnership with US giant Lowe's Companies could be in trouble if a report by Merrill Lynch analyst David Errington is to be believed. Errington has estimated that Woolworths shareholders could lose up to $2 per share, or a total of $623 million, during the deal's first five years of operation, scheduled to begin in 2011. The move is designed to challenge Wesfarmers-owned Bunnings' dominance of the space. But, Errington notes, "As we see it, Bunnings has reached probably every desirable demographic region in Australia." Another analyst has thrown cold water on the float of Myer, saying it "smells of opportunism.” Private client adviser Kieran Kelly of Sirius Fund Management also questioned the tactics of promoting Myer "special team member" and former Miss Universe Jennifer Hawkins in the float and the possibly irrational public demand for IPOs. That same irrational demand arguably helped Telstra list its T2 shares at $7.40. But still the good times bandwagon roles on and the Australian Financial Review tells us that the investment banker beauty parade for Ascendia Retail is on this Friday. A beauty parade of this type usually features no fashion models, but after the Myer experience you can never be too sure. In any case, private equity-backed Ascendia owns the less glamorous brands of Rebel Sports and A-Mart All Sports, which are perhaps more befitting of Magda Szubanski's character in Kath and Kim than the stylish threads of a beauty queen. Not that the bankers will mind; it is a different type of figure that they're after, at least in business hours. Watch out too how the float goes for Kathmandu, which like Myer is being advised by Macquarie Capital and Goldman Sachs JBWere.

Macquarie Airports

Most people would tend to think that infrastructure is infinitely less glamorous than fashion, but it's coughed up plenty of activity in recent months. Shareholders in Macquarie Airports (MAp) yesterday approved the internalisation of its management rights for a final fee of $345 million, payable to Macquarie Group. The payment of that fee has been the cause of much debate and until Tuesday evening it was also the cause of a rival proposal by Global Airports (GAp), a consortium of former MAp executives led by AFL chairman Mike Fitzpatrick, who also used to run Hastings Funds Management, a competitor with Macquarie in the listed infrastructure fund space. As The Australian's Bryan Frith described it, Fitzpatrick and the chaps at GAp "chickened out” when, in the style its namesake and former parent is known for, MAp threatened to sue. But in any case that's all in the past and MAp indeed doesn't even share the Macquarie name anymore. It's just called MAp, one third the letters and hopefully a lot fewer fees as well.

Macquarie Infrastructure and Babcock and Brown Infrastructure

One unintended outcome of the Macquarie Airports/MAp saga is a greater scepticism about Macquarie Group's continuing role as manager of Macquarie Infrastructure Group (MIG), which owns tollroads in Australia, Europe and North America. As Alan Kohler wrote yesterday, MIG's internalisation could be next as Macquarie moves from being a kind of infrastructure fund factory into a more advisory-centric global investment bank. Macquarie indeed continued that transition overnight with the purchase of Fox-Pitt Kelton Cochran Caronia Waller for $US130 million. Macquarie has also recently invested $US100 million in Bahrain merchant bank Gulf Finance House, acquired Delaware Investments from Lincoln Financial Group for $US428 million and earlier this year bought Tristone Capital, a Canadian energy advisory company, and the gas trading business of Constellation Energy. These investment bank acquisitions, along with the recent recruitment of a number of senior bonus-pullers from rival Wall Street firms, all point to a new era at the Silver Doughnut. Frankly, MIG could be glad to get out what's looking to be Bubble City 2.0. Elsewhere in the rebirthing department, Babcock & Brown Infrastructure (BBI) is said to be close to finalising its rescue deal with Brookfield Asset Management, the Canadian fund manager. BBI is said to have declined an alternative offer from a consortium led by Royal Bank of Scotland, which The Australian's Adele Ferguson claims BBI kept shareholders in the dark about. The RBS proposal was believed to have offered an additional $200 million in capital. At least it keeps things simple for Brookfield, which is meanwhile suing American International Group over an interest rate swap pact.

Wrapping up

In other news today, the ACCC is believed to be considering how to block National Australia Bank's takeover of the Challenger mortgage management business and Elders has completed the sale of its insurance operations to QBE Insurance Group for $270 million. Elders has also refinanced syndicated bank facilities worth $905 million and note facilities worth $271 million. Timbercorp has also come to an agreement with a group of investors to sell its forestry assets for $345 million. The investors, advised by Global Forest Partners, will bundle the assets into a new vehicle, Australian Bluegum Plantations. Of deals that are in trouble meanwhile, Fortescue Metals Group's $US6 billion debt financing agreement with the China Iron and Steel Association and Baosteel has failed to meet deadline. Fortescue shares fell another 8 cents, after already falling 10 per cent in the last week on rumours of the deal's demise and the resignation of chief financial officer Michael Minosora last week. And speaking of trouble, Rio Tinto and BHP Billiton's Guinea operations are in crisis mode (well, beyond the semi-permanent crisis mode they're already in) with the killing of at least 157 people in riots in the West African country. Troops from the military junt – which recently cancelled Rio's rights to its Simandou iron ore project, awarding them instead to a shadowy Israeli diamond mogul – opened fire on a crowd in the country's capital during a protest rally. More on this type of thing, along with capital raising news for Galaxy Resources and Campbell Brothers in Deals TV.