THE DISTILLERY: Frothing at Foster's

A splittin' in Oz and a hitchin' in the old dart, such are the mysteries of international business and timezones these days that death and renewal can be celebrated on the same day in different parts of the world and have no influence on each other, except that some local royalists will be able to toast the London festivities tonight with headache makers made by the newly-separated Foster's beer and wine companies. Of course the executives involved in this latest change at Foster's will no doubt celebrate today, after the vote, just as their forebears did in the past when they created the unwieldy and sluggish monster and waited for the synergy to kick in. It didn't, and billions of dollars of losses and lost opportunities later it's back to the future, with a touch of dj vu all over again. It especially hurts if you are a Foster's shareholder.

It will be more funeral than divorce or rebirth as Foster's shareholders move to split the company that once made a virtue out of the buzz word, "synergy", as the Fairfax business pages report: "Investors will gather in Melbourne this morning to finally bury the costly 15-year dream of countless Foster's directors and managers to fuse together a beer and wine business that could confidently stride both sides of the beverage street. After nearly $3 billion in write-downs, mostly linked to the ill-fated move into wine, it is expected that a demerger will be struck today that will separate beer and wine and that two new independently listed beverage companies will be born." And the Australian Financial Review nicely juxtaposed the Fosters split with a certain London wedding: "Foster's shareholders will vote to split the iconic business on the same day as people the world over stop to celebrate a royal wedding." Hardly a stellar day in Melbourne, more VB then.

And the old Foster's mantra is still there, as the AFR reports: "David Dearie, the man chosen to lead the world's second-largest wine company if Foster's Group shareholders today approve the plan to jettison Treasury Wine Estates from Carlton & United Breweries, has warned that investors will have to be patient." Which means don't expect miracles, except after one bottle too many of our best headache maker.

And, how patient you might ask? Well Nabila Ahmed at The Australian reckons she has an answer, or some dealmaker has an idea to make more money out of the Fosters cash machine: "As Foster's Group shareholders prepare for this morning's Melbourne meeting to approve a cure for a hangover that has lasted the better part of 15 years, already the focus is starting to shift to the next deal. No, it's not an imminent takeover offer for either of the beer or wine operations in their entirety -- the soaring Australian dollar, combined with a strong stock price, has taken care of that for now. What investors are talking about is an old idea that could further simplify the wine business and generate some value sooner rather than later: a sale or spin-off of the Beringer wine business that makes up roughly half of the $2.96 billion wine division, Treasury Wine Estates." Two more bottles of your best, my friend, and keep them coming.

The rich don't always win #1, as the Sydney Morning Herald reports this morning: "Shareholders in RHG Ltd have delivered an emphatic rejection to one of Australia's richest men, John Kinghorn, with an 85 per cent vote against a controversial share buyback that would have delivered him control of the profitable rump of the old RAMS Home Loans business. In the face of the overwhelming no vote, Mr Kinghorn abandoned the buyback, declaring instead a 79 fully franked special dividend for all shareholders, announcing that RHG was once again for sale and the appointment of two new directors. The company will be wound up by the end of next year. It is the third significant backdown from Mr Kinghorn in a week over his controversial low-ball buyback that would have delivered less cash to shareholders than the company's own valuation of its assets."


And The Australian's Bryan Frith told readers: "Multi-millionaire John Kinghorn not only failed decisively yesterday to clear the way for him to take control of RHG, the rump of the failed RAMS Home Loans group he founded -- but also bowed to shareholder pressure and agreed to return funds to all shareholders in a fully franked dividend." His column was headlined this morning "Chalk one up for shareholder activism", which was spot on.

The rich don't always win #2: Malcolm Maiden has a good column in the Fairfax business pages this morning: "A speculative call gone wrong and a deteriorating US dollar have played a part in the Australian dollar's extraordinary ascent this year. However, real demand is underpinning the rise, with little on the horizon to undermine it. The speculative call gone wrong was a series of sell bets placed on the Aussie by hedge funds and other short-term traders from the beginning of this year, after the Aussie achieved parity with the US dollar. Sell positions have been closed out unprofitably, and the dollar's rise is now meeting little resistance. The weak US dollar is playing a part in the Australian dollar's ascent, but only a part: the greenback has fallen by 6.5 per cent against the euro since mid-March, and in the same time, the Australian dollar has risen by 11.6 per cent." Many of these funds were telling credulous Australian journalists and analysts that our house prices were too high and would collapse....

And accounting? The Sydney Morning Herald reports this morning: "Oliver Curtis's rise through Sydney's social pages is a story of bright young things, lavish expenditure and parties. His fiancee, sporting a rumoured $200,000 engagement ring, is the 30-year-old publicist Roxy Jacenko. His father is the corporate titan Nicholas Curtis, currently locked in a deal involving the company he chairs, Lynas Corporation. The Herald has learnt the corporate regulator is treating an investigation of Mr Curtis, 25, on insider trading suspicions raised by a court judgment, as a priority matter. The Australian Securities and Investments Commission's focus stems from Mr Curtis's former best friend, John Hartman, who was sentenced in December to four-and-a-half years in prison."

Winners and grinners as the big men fly over Melbourne: The AFR's Chanticleer scribbler writes: "Those who think there will never be a sports rights deal bigger than the $1.25 billion AFL broadcast agreement reached yesterday have got it wrong."

And Business Spectator's Stephen Bartholomeusz fleshed out the agreement: "the revisions to the anti-siphoning regime, the advent of digital multi-channelling, the need for pay TV to breathe some life into stagnating penetration rates, Seven's desire to maintain the lead it has established in free-to-air TV over the current rights period, the rapidly increasing take-up of smart phones and IPTV-enabled devices, and the AFL's own creating of extra programming by adding two new teams, combined to deliver the AFL what it wanted. The AFL didn't just get a $1 billion-plus headline number. It will receive $1.12 billion in cash and another $135 million in ''contra'' deals to take the overall value of the package to a remarkable $1.25 billion. The current package, valued at $780 million, had a cash component of only $749 million." A lot to finance the losses in Western Sydney then.


According to the Sydney Morning Herald and other reports this morning: "The World Bank remains optimistic about China's economy but has urged policy makers to press ahead with monetary tightening to control property prices and inflation. The bank's quarterly update for China said inflation was likely to fall, in line with food prices, but the impact of surging commodity prices was yet to be felt. The bank says consumption growth is falling, particularly in car sales, after a series of incentives expired, but investment and employment growth remain strong enough for it to upgrade its GDP growth forecasts: to 9.3 per cent this yearv (sic) and 8.7 per cent next year." Ah, so no damage to growth yet. The China bears will be disappointed.

And The Australian reported this morning: "The International Monetary Fund has urged Australia to establish a sovereign wealth fund to ensure future generations share in the returns from the mining boom. The fund's latest review of Asia warns that Australia's increasingly close integration with the region has made its economy more vulnerable to any falls in commodity prices. However, it remains confident that Asia's growth will continue, holding out the prospect that the surge in Asian economies over the next 10 years will add about 20 per cent to the size of Australia's economy."


Fairfax's Adele Ferguson says: "Computershare took advantage of the soaring Australian dollar and clinched its biggest corporate deal ever with the purchase of the Bank of New York Mellon's share registry business for $US550 million ($508 million). The deal is expected to take a year to clear regulatory hurdles, at which time Computershare is banking on a recovery in the US economy. If this gamble is right, it will prove to be a great buy. Share registry businesses do well when mergers and acquisitions and capital-raising activity pick up." Wall Street has rebounded strongly and is now trading at the highest level since June 2008, but volumes are still low and the outlook for the US economy and growth is weak.

And John Durie cheered on The Australian's website yesterday: "Amid the gloom over industrial stocks caused by the skyrocketing Australian dollar, Computershare boss Stuart Crosby should take a bow after today's $508 million BNY Mellon purchase. Granted Crosby will need some fast talking to get the deal through the US anti-trust tsar, given the strong market share held by both CPU and BNY in the US. But, while others sit around worrying about the US, Crosby has picked up the ball and is running with it. The deal in greenback terms is worth $US550 million, which translates into $508m, and is being debt funded for virtually zero cost. This makes a good strategic deal even better."


On smh.com.au Fairfax's Ian Verrender summed up the initial reaction to the CPI from the Rate Rise Looms mob: "Once again, the fear mongers out there have been delivered a good headline but unfortunately the analysis is way off the beam. Yesterday's inflation numbers, with an annual rate now hovering at an uncomfortably high 3.3 per cent, is well outside the Reserve Bank's comfort zone, prompting a lot of the half-baked analysis we've seen in the past 24 hours. Prices for food have risen sharply because floods and cyclones have decimated crops. Fuel prices have soared because of supply disruptions in the Middle East. Power prices have risen as well. But none of this can be attributed to consumers going mad, borrowing money and spending up big. To the contrary, consumers have pulled their heads in, borrowings are down. The price hikes we've seen are taking cash out of household budgets. And that would create a warm fuzzy feeling around the Reserve Bank board table when it sits down next week."

Michael Pascoe had a similar comment on smh.com.au yesterday: " It's amazing how so much of the commentariat, people who really should know better, fell for the lure of the interest rate pressure headline over the very clear guidance provided by the Reserve Bank, never mind what you get by actually breaking down the figures and thinking for a moment about what they mean. No, the highest headline March quarter CPI number in five years doesn't mean much for interest rates, but it does add further heat to the political "doing it tough” we've been living with ever since Howard and Rudd were going toe-to-toe four years ago. For some Australians, particularly those caught in the invidious poverty trap transitioning between social welfare and work, it's true, they are doing it tough."

Meanwhile, it makes you wonder sometimes what goes on in the market and the way some news leaks out: The Australian's senior columnist, John Durie pointed out yesterday: "Goodman Fielder cut its profit forecast by 20 per cent today, sending its shares sharply lower, a day after the stock price fell 3.3 per cent on 40 per cent more turnover than usual. Chairman Max Ould also confided that "we are currently in the process of identifying a successor to our CEO Peter Margin". Mr Margin will walk tomorrow afternoon, leaving Mr Ould without a CEO, an acting chief financial officer and now a profit in the $140 million to $182 million range against market forecasts of $182m." That's this afternoon for Mr Margin's departure.

The AFR said this morning: "Goodman Fielder's 20 per cent full-year profit downgrade underlines the scale of the challenge facing the food company's next chief executive." This company has always underperformed.

And The Australian's Tim Boreham remarked on the paper's website yesterday: "The supplier of household food staples such as marg, bread and canola oil has surprised no-one by issuing an earnings downgrade this morning, but the extent of the revision is more of a shock. In fact it's quite possible the business generated no earnings at all in the March quarter. In February, Goodman expected a $183m full-year result -- in line with the previous year -- after reporting a $93.1m interim number. Now the full-year profit is expected to come in at only $140m-150m."

This morning Fairfax's Insider, Ian McIlwraith wrote: "Woolworths's Michael Luscombe and Coles's Ian McLeod can add another supplier notch to their belts this week in the supermarket wars - that of breads and spreads maker Goodman Fielder. Goodman unveiled a profit downgrade yesterday which its chairman, Max Ould, blamed (squarely, if not fairly) on being caught in the crossfire between shopping trolleys. In fact, Ould said, the pricing stoush resulted in some of Goodman's products coming off the shelves, although he did not specify whether that was the manufacturer's or the retailers' decision. More worryingly, he described the reduction in products as ''largely temporary'', which implies a permanent change in supplier relationships." Hmmm, not that much bread in making bread?

Finally, a heads up for next week's big story: bank profits (and some bashing later on). The Herald Sun reports: "Australia's banking goliaths are poised to comprehensively beat their record first-half profit tally, shrugging off the effects of weak consumer and business credit demand. Analysts believe interim results to be posted next week by ANZ, Westpac and National Australia bank will take the combined cash profit for the big four to about $11.8 billion -- ahead of last year's record $10.5 billion. All three banks are likely to follow the trail blazed by the Commonwealth Bank, which reported a record $3.34 billion cash profit in February, and unveil profit figures that trump their results for the first half last year." And they will be followed by the Senate banking inquiry report which is due to be released next Friday.