Australian Share News FGL
July 28th, 2010
Australian Share News FGL
In Australian Share news FGL announced plans to demerge beer from its underperforming wine operations, with separate listings for the two arms.
CEO Ian Johnson noted that the groups wine business is showing signs of growth, but continues to be impacted by oversupply in Australia, subdued consumer demand in key international markets and a strong Aussie dollar during FY10 (which, fortunately for FGL, has seen a sharp slide of late).
We expect FGL to allocate a smaller proportion of debt to its wine business post demerger, as the wine business has significantly weaker cashflow compared to the beer business, along with more uncertainty in its near term earnings outlook.
There is likely to be significant valuation upside on FGL if the company can be valued as two separate entities. It will also open the door for merger & acquisition opportunities for both entities, which could unlock more value for shareholders.
A demerger could be very beneficial to FGL. It could increase transparency, allowing investors to more appropriately value each business over time.
A demerger will also allow for flexibility for separate boards and management of Beer & Wine to develop their own corporate strategies and implement capital structures that are business-appropriate.
FGLs stock rose today on the demerger plans, despite news that the demerger will result in writedowns of up to $1.3 billion on the carrying value of its wine business.
