Foster’s CEO resigns as wine business struggles

The slowing economy has claimed another entrepreneurial chief executive, with Foster’s chief Trevor O’Hoy resigning after announcing a profit downgrade.

The beer and wine giant now expects earnings to increase 5% to 7% in 2007-08, compared with an earlier forecast of 10% growth. The poor performance was blamed on poor sales in Foster’s American wine business and slowing sales in Australia.

But Foster’s chairman David Crawford was scathing in his assessment of O’Hoy, who was appointed in March 2004 and has worked for the company for 33 years. Crawford particularly took aim at O’Hoy’s acquisition of winemaker Southcorp for $3.2 billion in 2005. “The reality is we did not execute the Southcorp integration as well as we expected and operating conditions are now more challenging,” Crawford said. “We must also recognise and acknowledge that we paid too much to acquire wine assets.”

Foster’s has also announced writedowns of $600 million to $700 million on its global wine business. While this partly reflects the strengths of the Australian dollar and a general downturn in the global wine industry, the general feeling among analysts is that the Southcorp acquisition was too expensive and poorly timed.

There are a few lessons for entrepreneurs from O’Hoy’s demise. The first is that valuing acquisitions – always a difficult business – needs to be approached with caution, particularly if you’re praying a premium. The second lesson is that boards’ patience can be extremely short – you don’t have years to bed an acquisition down, you have months.

Foster’s shares were smashed after the announcement, falling as much as 3% to $5.20 before recovering lost ground.

O’Hoy has agreed to stay on board until a successor is appointed.


You can help keep SmartCompany free for everyone to read

Small and medium businesses and startups have never needed credible, independent journalism and information more than now.

That’s our job at SmartCompany: to keep you informed with the news, interviews and analysis you need to manage your way through this unprecedented crisis.

Now, there’s a way you can help us keep doing this: by becoming a SmartCompany Supporter.

Even a small contribution will help us to keep doing the journalism that keeps Australia’s entrepreneurs informed.

And it’s not all one-way traffic either. SmartCompany Super Supporters get to dial into our monthly editor’s meeting and attend a monthly, invite-only webinar with a big-name entrepreneur.