Management Turnover as Change Agent

Tuesday, June 10, 2008

Beer Goes Down Easy But Wine's Another Matter

Trevor O'hoy, the CEO of Australian beer and wine giant Fosters FGL (Sydney ASX), quit (forced out) after the firm issued a profits warning and cut the value of the company's wine assets worldwide by $664 million. The company also initiated a complete review of its wine business. According to Elizabeth Knight of the Sydney Morning Herald,
When the board of a company initiates a strategic review of the main segment of its business and does not invite the chief executive to participate, it is a bit like throwing a party and not letting the birthday boy in. So the Foster's board's decision to undertake a review of the structure and operations of its wine business without the chief executive, Trevor O'Hoy, was a clear message that his part in executing the new strategy did not exist...

... Foster's has undoubtedly had its fair share of bad luck since it invested about $7 billion into its global wine business, and it is this fact that has probably saved O'Hoy until now. But the fortunes of Foster's have plenty to do with management, and this is why O'Hoy has lost his scalp.
Knight went on to write,
The chairman yesterday admitted what investors have known for years - that the company paid too much for its main Australian wine investment, Southcorp. It also paid too much for its US wine acquisition, Beringer. It just got drunk on the prospect of superior growth from wine. But like any addict the first stage to recovery is to admit there is a problem. How to solve it is not so easy.
New management will be an extremely important component in the company's attempt to turn its problems around. According to Malcolm Maiden of the Australian Age who in his story wrote about Fosters' wine division,
... there has to be some uncertainty about how the division will be structured, at least, and about whether the review will be catalyst for something bigger — a wine buy-out or a full takeover, for example — and for that reason the search (CEO search) is more complicated than it could have been.
Analysts and investors are all wondering if there is a possibility for some kind of sell-off in the making. Fosters has indicated it plans to keep the wine business and find a way to make it work. Only time and a new top executive will help determine the tea leaves for the company. Keep a close eye on the company and its forthcoming moves. There is likely more to come.

For more:

Financial Times
International Herald Tribune
Herald Sun

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