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28 Aug 2000
MOODY'S AFFIRMS FOSTER'S Baa1 SENIOR UNSECURED AND P-2 S/T RATINGS, ASSIGNS Baa2 SUB-DEBT RATING, OUTLOOK STABLE
Approximately US$1,200 Million of Debt Securities Affected.
New York, August 29, 2000 -- Sydney, August 29, 2000 -- Moody's Investors
Service today affirmed the Baa1 senior unsecured rating and Prime-2
short-term rating of Foster's Brewing Group Limited's (Foster's)
guaranteed subsidiaries. This rating action follows Foster's announcement
that it intends to acquire 100% of the shares of the US listed
wine company, Beringer Estates Holdings Inc (Beringer), at
a total cost of approximately A$2.6 billion (US$1.5
billion). The affirmation reflects Moody's expectation that the
acquisition will be completed as contemplated, and that Foster's
will raise up to A$700M new equity through a share placement to
fund part of the acquisition cost. The affirmation also recognises
the synergies of the acquisition, and the strong underlying performance
of Foster's existing core business in beer and wine. At the same
time, Moody's assigned a Baa2 rating to the proposed US$400M
subordinated convertible notes, reflecting the notes subordinated
status to Foster's senior unsecured obligations. The rating outlook
FBG Finance Ltd US$200M and US$300M Senior Notes,
guaranteed by Foster's, Baa1
FBG Treasury (Europe) BV Euro300M Medium Term Notes, guaranteed
by Foster's, Baa1
Euro500M EMTN Program, guaranteed by Foster's, Baa1/P-2
Foster's Securities Corp US$400M Subordinated Convertible Notes,
guaranteed by Foster's, Baa2
In Moody's opinion, the acquisition of Beringer, a niche player
in the US premium wine sector, is in line with Foster's growth strategy
for its core business, and will bring the benefits of geographic
and business diversification. In addition, Beringer has the
potential to capitalise on Foster's international distribution channel,
including the wine clubs in Australia and Europe, to enhance its
low volume of export sales. Foster's wine products in turn will
benefit from the established marketing & sales channel of Beringer
in the US. Beringer has maintained profitable operations with over
20% EBIT profit margin since listing in 1997. The acquisition
will complement the existing profitable operations of Foster's.
The acquisition cost of approximately A$2.6 billion,
including the assumption of Beringer's book debts, will be financed
by a mix of equity, the proposed convertible bonds, bank debt
and cash on hand. Moody's recognises that Foster's total debt will
increase to a high level of over A$3 billion post acquisition.
Nevertheless, in Moody's opinion, this increase is offset
by the equity element in the funding package, and Foster's decision
to introduce the dividend re-investment plan and to suspend the
share repurchase program. In addition, Foster's projected
strong operating cash flow provides key support to the rating.
Moody's believes that Foster's management has successfully realigned its
business portfolio, exiting the low return businesses and focusing
on the core beer and wine business. The group has a more than 50%
share of the Australian duopolistic beer market that continues to generate
very stable and predictable operating cash flow, and has achieved
satisfactory growth in the leisure & hospitality sector under Carlton
and United Breweries Ltd. Moody's expects that Foster's will maintain
its highly competitive and profitable position in the Australian beer
and leisure market, which accounts for approximately 60%
of its pro-forma earnings. Foster's strategy to diversify
into the premium wine business through the acquisition of Mildara Blass
Ltd in 1996 has proven successful, with Mildara's EBIT contribution
grew from A$57M in FY97 to A$120M in FY99.
The rating outlook is stable. Moody's expects that the management
will adopt a prudent financial policy in pursuing its on-going
growth strategy. This will enable Foster's to maintain a financial
profile that is consistent with the current rating.
Foster's Brewing Group Ltd, headquartered in Melbourne Australia,
conducts brewing operations mainly in Australia, and also in China,
Vietnam and India through its subsidiaries and joint ventures.
The company also engages in leisure & hospitality and wine operations.
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
Vice President - Senior Analyst
Moody's Asia Pacific Ltd.
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