Foster’s Bid for Rival Criticized

Foster’s Group Ltd.’s 3.1- billion-Australian-dollar ($2.4-billion) hostile bid for Southcorp Ltd. is a “mistake” because it’s paying too much to buy a company that’s recovering from a record loss, while trying to boost earnings at its own wine unit, brokers including Merrill Lynch & Co. said.

Foster’s offer for Southcorp is “a poor decision, and we believe that the takeover bid isn’t in the best interests of shareholders,” said David Errington, an analyst with Merrill Lynch in Sydney.

The bid by Foster’s, Australia’s biggest brewer and winemaker, comes midway through a one-year timeframe set by Foster’s Chief Executive Trevor O’Hoy to restore earnings growth at his Beringer Blass Wine unit after a California grape glut depressed prices and cut earnings. Southcorp is closing wineries to reduce costs after a failed discounting strategy and write-downs from its acquisition of the Rosemount brand.

“This is Foster’s repeating mistakes from all sides, such as when Southcorp acquired Rosemount and Foster’s bought Beringer,” said Hugh Giddy at Perennial Value Management Ltd. in Sydney. “Not only are they paying a full price, there is a chance they will have to pay more,” he said.

Sydney-based Southcorp on Sunday rejected the bid as too low.

Foster’s, which paid $1.5 billion in 2000 for California-based Beringer Wine Estate Holdings, bought the business at the peak of prices, Chief Financial Officer Pete Scott told analysts Sunday. That won’t be the case with Southcorp, he said.