Foster's Chief Quits, Troubles Still Remain

Submitted by Craig Strzelecki on 11 June, 2008 - 10:03

Foster's Group (FGL) Chief Executive Trevor O’Hoy tendered his resignation today taking the responsibility as Chief Executive and stepped down to the let the new management team take over the reigns. He resigned at the emergency board meeting convened on Monday to review the deterioration of the US wine business which has coincided with the decline in market share for Australian wines.

The company’s shares fell more than 3 percent earlier in the day to as low as $5.20 but later recovered after the Chairman, David Crawford admitted that company had paid too much for the wine group, SouthCorp. He said that the board shall review the wine division which would result in sale of assets. He also stated that the write downs were not in cash and did not affect the fundamental strength of the business. The company still has a strong Australian beer business that generates strong results. His comments boosted the investor confidence and the share prices rallied later in the day, clearly depicting that board did the thing to accept O’Hoy’s resignation. The share prices posted a 1.1 percent gain in the plunging market later in the day.

Foster's both the acquisitions of Australian winemaker Southcorp and US winemaker Berringer Blass have failed miserably. US wine operations are even a bigger challenge owing to the ongoing credit crisis in the US economy. Foster’s is underperforming in US, which gives more than subtle hint that the management has the wrong product and the market mix. Foster’s group also conceded that it would be writing down its wine assets by up to $700 million and admitted that it overpaid in its $3.2 billion acquisition of Southcorp.

Foster's Group board also conceded that it has put a “for sale” tag on its wine business especially in United States. The Chairman refused to rule out that the company might go ahead with a possible break up of Foster’s Australian and America beer and wine businesses.

Speculations are hot regarding the new Chief Executive. Most of the market experts feel that Foster’s would bring in a new management team who can bring new strategies to boost business growth rather than promoting an internal successor to the existing business strategies.

Foster's Group hasstated that it expected 2008 earnings per share to rise between 5-7 percent in the constant currency terms. Earlier, it had recorded 10 percent growth in the previous years.