Merger brewing? NZ market unfazed

By DITA DE BONI

New Zealand commentators say the local ramifications from any future purchase of Australia's Foster's Brewing Group by UK-based Diageo would be small.

Speculation out of the UK this week suggested Diageo had considered buying Foster's for $A11 billion ($13.8 billion) in a tilt at the company's valuable wine assets and beer distribution channels.

While Foster's wine assets, including the newly acquired Beringer Estate in California, are considered a prime attraction for Diageo, Foster's Lager has made strong distribution inroads with its beer in both the UK and US. It is the most popular brew in London and second-largest seller across England.

It is understood, too, that Diageo had considered the purchase to boost its worldwide Guinness Brewing operation.

But in New Zealand, commentators say, Diageo would gain little from access to Foster's International (NZ), and not much would change in the market as a result of any potential merger.

Locally, Foster's has a strong spirits portfolio, administered by subsidiary company Continental Wines & Spirits. That portfolio includes some spirits brands from Canadian-based Seagrams, including Chivas Regal whisky and Captain Morgan Rum. But there would be little change as a result of a Diageo and Foster's merger, as Diageo and Pernod Ricard signed an agreement to buy Seagrams' spirits and wine business for $US8.15 billion ($41 billion) before Christmas.

One player that could be affected by a Diageo/Foster's merger is Lion Nathan. A good part of its liquor business - through NZ Wines & Spirits - is supplied by Diageo.

Lion yesterday refused to speculate on the effects of a merger.

Thomas Chin, of the Distilled Spirits Association. said it was possible Diageo could roll together its spirits brands with that of Foster's if a merger did take place.

"But that is if it happens. And I can't see many other ramifications locally. Basically, it is indicative that there are too many players in the global scene. There will be more consolidation [yet] in the liquor industry."

He said industry contacts in Australia had been surprised by news of a possible buyout of Foster's.

Beer industry commentator Luke Nicholas said he, too, could not foresee any big effects in New Zealand.

"If anything does happen, it will be so long term that it will probably not be noticed by consumers."

Foster's has issued a statement saying it did not receive a formal bid from Diageo as its shares rocketed to a 22-month high on the back of speculation. They closed yesterday up 3c at $A4.84.

Australian analysts say the price offered by Diageo is too low to inspire the Australian liquor company, and did not take enough account of Foster's wine assets.

David Cook, of ABN Ambro in Sydney, said that although Diageo did have enough cash to purchase Foster's, the chances of its doing so alone were limited. He suggested Diageo might consider buying into Australia with another major player such as Scottish & Newcastle or Interbrew.

The purchase price suggested by Diageo was too low by several billion, he said.

"There are other companies here Diageo could look at to get Australian wine - companies like BRL Hardy and Southcorp spring to mind."

Mr Cook said one effect on Lion Nathan in Australia could be an increase in the cost of sponsorship, which both Foster's and Lion want to take in the opposite direction.

"There is huge competition for sponsorship of events here, which has really pushed the price of it up, compared with what was paid years ago."