Roll up for the greatest sale on Earth!

The Rural Services Company, Landmark Australia, have released today the full list of properties to be sold by Fosters as part of their restructuring.

Suffice to say that amongst this list lie some splendid properties that, if the market were different, would be snaffled on the open market almost immediately.

The full list is below (from landmark.com.au):

South Australia

1. Clare
   • Clare Estate
2. Eden Valley
   • Roeslers
   • Matthews Road
3. Adelaide Hills
   • Partalunga
4. Mclaren Vale
   • Roscor
   • Tamar
   • Blewitt Springs
5. Langhorne Creek
   • Langhorne Creek-Blass*
6. Padthaway
   • Lindemans Padthaway*
   • Padthaway Blass* – Garretts
   • Padthaway Blass* – Gales & Tolleys
7. Wrattonbully
   • Duck Pond
   • Schultz
   • Guthries
8. Coonawarra
   • Cluny
   • Robertsons Well
   • Glenroy
   • Kirribilli

New South Wales

1. Hunter Valley
   • Denman Vineyard and Winery
   • Roxburgh
   • Yarrawa
2. Mudgee
   • Cumbandry
   • Hill of Gold
   • Mountain Blue
3. South Western Slopes
   • Tumbarumba
   • Tumblong
4. Sunraysia
   • Yankabilly

Victoria

1. Sunraysia
   • Lake Cullulleraine
2. Glenrowan
   • Baileys of Glenrowan
3. Pyrenees
   • Glenlofty
4. Yarra Valley
   • Racecourse

*Property name not included in sale

Looking closely at this list, it is the backbone of several brands that are up on the chopping block, which fits closely with the long term Fosters strategy of retaining brands, but relieving itself of the burden of vineyard ownership and maintenance.

From a fiscal point of view, this makes perfect sense – sell capital intensive, low return assets and simultaneously put long term grape leases down to buy the fruit back, effectively changing the business structure from a vertically integrated organisation that operates as bother grower and producer, into a focused production and marketing unit.

In reality, I would argue that this sort of sale is a considerably risky strategy that, given Fosters poor management of its wine division in recent years, could ultimately kill off the credibility of many famous brands (and in the process destroy their worth) at least to fickle fine wine lovers (which always trickles down to the mass market eventually).

It could, of course, also provide a much needed injection of funds, whilst streamlining the whole Fosters wine operation, ultimately leading to a much healthier long term prognosis for what is now our largest wine producer.

Personally, I can only see the danger here, as I believe that to make great wine you have to know and love your vineyards – not sell them off and buy the contracted grapes back again. Admittedly, in amongst the sale are vineyards that seem to have lost their marketability – such as Roxburgh in the Upper Hunter or Lindemans in Padthaway, but that is more a reflection of the brands associated with it, not the grapes that are grown in them. Similarly, the vineyards in Sunraysia and some of the ‘non core’ vineyards seem like natural selloffs (wasn’t Racecourse the vineyard in the Hunter that was under Phylloxera threat, or at least across the road from the vineyard that got Phylloxera?).

However, in amongst the listings there are some assets that are rather questionable sales – notably, Baileys of Glenrowan, an operation that seemed to be getting back to some sort of peak, and also the Blass vineyard at Langhorne Creek – the backbone of several Jimmy Watson Trophies if I am not mistaken. It is here that Fosters are cutting it fine.

Regardless of what I think, amongst this Fosters Fire Sale there are some quality vineyards, and I only hope that they go to a happier, more supportive home. In recent years, several former Fosters operations have parted ways and rediscovered success – witness the buyback of Tulloch by the Tulloch family, or the reinvention of Hungerford Hill as examples. Lets hope that Baileys in particular can follow a similar route.

Suffice to say, this sale will change the dynamic of Fosters quite appreciably, for good or for bad, and at least on paper it makes reasonable sense. The question is whether this sort of quite short term thinking will actually be good for the business in the long run. I remain unconvinced.