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Foster’s Brewing Group Ltd.

Fosters Brewing Group Ltd.

77 Southbank Boulevard
Southbank
Victoria 3006
Australia
+ 61 3 9633 2000
Fax: +61 3 9633 2002
Web site: http://www.fostersbeer.com/

Public Company
Incorporated:
1962 as Elder Smith Goldsbrough Mort Ltd.
Employees: 12,500
Sales: A$2.5 billion (US$1.8 billion) (1996)
Stock Exchanges: New Zealand London Amsterdam Frankfurt Tokyo Montreal New York Toronto Luxembourg Zurich Basel Geneva
SICs: 2082 Malt Beverages; 5181 Beer and Ale; 5159
Farm-Product Raw Materials, Not Elsewhere
Classified; 5154 Livestock; 5099 Durable Goods, Not
Elsewhere Classified; 6719 Holding Companies, Not Elsewhere Classified

With breweries in eight countries and distribution to 120 nations worldwide, Fosters Brewing Group Ltd. is Australias largest beer producer and the fourth largest beer maker in the world. In the 1980s, the group evolved from a collection of independent business interests into Elders IXL Ltd., Australias biggest conglomerate, with interests including commodities trading, real estate, and foods. Saddled with a mountain of acquisition-related debt, the company suffered consecutive losses in 1990, 1991, and 1992 totaling more than A$2 billion. Shedding all but its international brewing interests, the company assumed its current name in 1990. The divestment process shrunk annual revenues from a peak of A$17.6 billion in 1989 to A$2.5 billion by 1996, thereby enabling Fosters to drastically reduce its debt and resume profitability in 1993.

Origins

Though Fosters predecessors date to the late 19th century, many sources trace the companys emergence as a major force in Australian business to the activities of one man, John Elliott. Through an astonishing series of acquisitions over the course of more than a decade, Elliott assembled a major conglomerate using a moderately sized jam company as its nucleus. At about the age of 30, Elliott returned to Australia after a brief stay in the United States, where he had worked as a consultant. Beginning in the early 1970s, with his only significant business experience consisting of a short stint at Australias largest corporation, Broken Hill Proprietary Co. (BHP), and a six-year engagement at the American consulting firm of McKinsey & Co. (two of those years in Chicago, the rest in Australia), Elliott set out to conquer the business world from the top, running his own company rather than working his way up from within one. After rounding up about A$30 million in backing from a collection of Australian business leaders, Elliott purchased Henry Jones (IXL) Ltd., a Tasmanian company whose main businesses were making jam and canning fruit. (IXL was the food companys lead brand of jam. Its name was a phonetic spelling of I excel.) Henry Jones grew during the rest of the 1970s through a series of acquisitions of companies that could provide necessary auxiliary services, including canning, packing, milling, and freezing operations.

One of the companies that had helped finance Elliotts takeover of Henry Jones was Elder Smith Goldsbrough Mort Ltd., Australias leading stock and station agency business. In operation since 1839, this company provided a wide range of agricultural services, including livestock and wool auctioning, real estate services, and farming supply merchandising. In 1981 Elder Smith became the target of a takeover attempt by the Bell Group, a company controlled by one of the richest men in Australia, Robert Holmes a Court. Elder Smiths management asked Elliott to act as a white knight and rescue it from the hostile raider through a merger. What took place was essentially a reverse takeover, with the larger Elder Smith buying out Henry Jones (IXL), to create Elders IXL Ltd. The Jones management team assumed the new companys leadership positions.

One important asset that Elder Smith brought into the merged company was its fledgling banking operation, in which it provided farmers with a variety of financial services that included advances, acceptance of deposits, and mortgages. The companys work in the world of finance was expanded in 1982, when, a mere month after the mergers official completion, the company acquired the Wood Hall Trust, a British company with financial interests throughout the Far East and Australia. Elders also diversified into the oil business in 1982, with the purchase of a 19.9 percent interest in Bridge Oil Limited, a large publicly held company.

The next event of great importance for Elders was the 1983 takeover of Carlton & United Breweries Ltd. (CUB), best known as the makers of Fosters Lager. CUB was founded in 1888 by W.M. and R.R. Foster, American immigrants to the land down under. Before their arrival on the Australian brewing scene, virtually all the countrys beer was imported from Great Britain. The Foster brothers introduced lager beer a lighter brew that was better suited to Australias harsh climate than heavy British alesas well as refrigeration to the island. CUB began its long evolution into an international brewing powerhouse in 1901, when it shipped Fosters Lager to Aussies serving in the Boer War in Africa. In the early 1980s, CUB used Fosters growing worldwide reputation to overcome the Australian brewing industrys notorious provincialism. By the mid-1980s, Fosters Lager was the nations top brand.

CUBs relationship with Henry Jones had started in 1980, when the brewery purchased Elder Smiths pre-merger, 33 percent stake in that company. CUB had also acted as something of a matchmaker during the formation of Elder IXL by buying Holmes á Courts share of Elder Smith, and thereby eliminating the specter of further takeover attempts by him. Between these two actions, CUB had become Elders IXLs major shareholder at over 49 percent by 1983. Toward the end of that year New Zealander Ron Brierley, head of investment holding company Industrial Equity Ltd., launched a bid to take over CUB. Once again Elliott responded quickly, raising US$720 million in two days with which to start buying up CUB stock. Within a couple of weeks, Elliott had taken control of over half of the brewerys stock, and by the middle of 1984, he had gained full ownership.

Evolution of Elders IXL in the 1980s

The rest of the 1980s was marked by a non-stop series of acquisitions in a variety of industries, including mining operations and more beer companies. One result of this period was a reputation for Elliott as one of a rising breed of Australian takeover artists, a group whose members included Holmes a Court, media mogul Rupert Murdoch, and Alan Bond (also known as the man who took Americas Cup out of America). The takeover of CUB, the largest in Australia up to that time, also created a substantial debt for Elders. The strategy for reducing the debt was to sell off the unprofitable parts of the various acquired companies at the same time new ones were being sought. For example, by the middle of the decade, there was no longer a food division at Elders, whereas food was once the companys core industry. By 1986 the old jam factory in the suburbs of Melbourne, now housing the companys headquarters, was nearly the only remnant of the old version of Elders. Also dumped were the 350 pubs once controlled by Carlton & United. Among the companys purchases during the mid-1980s were a 40 percent stake in Roach Tilley Grice & Co., a major Australian stock brokerage, and a 20 percent interest in Kidston Gold Mines Ltd., both in 1984.

In 1985 Elliott launched a takeover bid for Allied-Lyons PLC, a company four times the size of Elders. Elliotts initial bid for Allied, a British brewery and food conglomerate in which he already held a six percent share, totaled $2.3 billion, the money coming from a multinational banking syndicate led by Citicorp. The move for Allied reflected a desire on the part of Elders management to expand substantially into European markets, prompted by the limitations of Australias population of only 15 million. The bid for Allied eventually reached $2.7 billion, but it was allowed to lapse without achieving its goal. One reason for the failure of the takeover attempt was Allieds merger with the Canadian liquor company Hiram Walker, which was itself fending off a takeover bid. Meanwhile, Elliott once again became involved in a raid orchestrated by Holmes a Court, this time saving BHP, Australias largest corporation, from a hostile takeover. With Holmes a Courts Bell Resources in control of 18 percent of BHP in the midst of its unfriendly bid, Elliott suddenly came up with about 19 percent of that company over the course of just a few hours and was invited to join BHPs board. Though grateful for Elliotts assistance in warding off the raid, BHP in turn purchased 19 percent of Elders in order to preclude the possibility of that company launching a BHP takeover attempt of its own. Before 1986 was over, Elders became the first foreign company to own a major British brewery when it acquired not Allied-Lyons, but Courage Brewing Ltd., Englands sixth-largest brewer. Elders paid $2.1 billion for the brewery and the 5,000 pubs the company also controlled. This purchase greatly expanded the presence of Fosters beer in Europe. Previously there had been a licensing agreement with Watneys.

Company Perspectives:

Fosters Brewing Group has a number of aims and business objectives which are all integral to the overall mission of enhancing shareholder value, including: rising returns on investment based on growth in profitability from ongoing improvements in profit margins, business expansion, efficient use of capital, optimising the Groups competencies; product innovation linked to consumer preferences; product quality and technical pre-eminence; marketing excellence; observance of the highest standards of corporate governance.

By the end of 1985, Elders was selling beer in about 80 countries around the world. The companys profit for that year was A$112 million, a 73 percent increase over the previous year, on revenues of A$5.4 billion. In 1987 Elders made its first North American beer acquisition, purchasing Carling OKeefe Breweries, the third-largest brewer in Canada, for about $300 million. By that year, Elders was the worlds number six beer maker. It was a heady time for Elliott in other ways as well. He was a rising star in Australias Liberal Party, and his Carlton Football Club won the Australian equivalent of the Super Bowl.

In 1988 Elders bought the remaining 60 percent of Roach & Co. Ltd., the stock brokerage into which it had bought five years earlier. That year there was widespread speculation that Elders would mount a takeover bid for Anheuser-Busch, which controlled about 40 percent of the beer market in the United States. These rumors were fueled in part by the fact that the Bond group, the companys chief rival in its home country, with whom it virtually split in half the Australian beer market, had recently purchased G. Heileman Brewing Co. of Milwaukee, establishing a strong American base of operations. Although Elders held about one percent interest in Anheuser-Busch, no action was taken toward a takeover at that time. Acquisitions had expanded the company substantially over the last half of the decade, from A$7 billion in 1985 to A$17.6 billion in 1989. Net worth multiplied rapidly as well, from A$l 12 million to a peak of A$795 million in 1988 before ending the decade at A$630 million. In 1989, Elders IXL was Australias largest conglomerate, but the strains of a decade-long, debt-funded acquisition spree were beginning to show.

Fosters as Primary Business in 1990

In 1989 Elders merged its North American beer operations (Carling OKeefe) with Torontos Molson Breweries. At the time of its creation, the joint-venture controlled 53 percent of the beer market in Canada. Other events of 1989 reshaped the companys future and ultimately led to Elliotts departure from the company he had built into an international empire. Harlin Holdings Group, a private investing firm owned mainly by Elders managers and led by Elliott, bought a 17 percent stake in Elders to secure the company from bids for control by outsiders. Australian regulators ruled that Harlin had to extend its $3 per share offer to all shareholders. As a result of this decision, Harlin embarked on what amounted to a takeover campaign for Elders, and ended up with a 56 percent holding in the company. This was a far greater share than the group had intended to purchase, and the Harlin group found itself A$2.8 billion in debt.

The solution to this situation, proposed by Elliott, was to spin off the companys agricultural business as a public company, carry on strictly as a beer operation, and sell off everything else, with proceeds going to the shareholders, the largest of which was Harlin. Harlin would also sell a portion of its holdings in both the remaining and spun-off corporations. In 1990 Elders began actively disposing of its non-beer enterprises. The companys paper, mineral, oil, and gas investments were divested in June of that year with the sale of Elders Resources NZFP to Carter Holt Harvey. Other properties that were sold off included the companys stockbrokerage and investment banking businesses, its North American grain operations, and its holdings in Scottish & Newcastle Breweries Plc. In addition, over 80 subsidiaries were liquidated that year.

While this streamlining process was taking place, Peter Bartels replaced Elliott as chief executive officer of Elders in May 1990. Elliott retained his chairmanship of the companys board. For the fiscal year ending in June 1990, Elders reported the largest loss in the history of Australian business, A$1.3 billion. Much of the loss was attributable to huge write-offs associated with the companys ongoing structural overhaul. The losses were particularly disastrous for Elliotts Harlin Holdings, which had come to rely entirely on dividends from its shares of Elders to make the interest payments on its huge bank debts. Harlin moved to alleviate some of its financial pressure by selling about 20 percent of its holdings in Elders for A$960 million to Japans Asahi Breweries Ltd.

In December 1990, the name of Elders IXL was changed to Fosters Brewing Group Ltd., which better reflected the companys increasing focus on the beer part of its business. Throughout 1991, the divestment of non-brewing properties continued. Elliott was succeeded as chairman by Neil Clark. Elliott continued as a board member, holding one of the three seats controlled by International Brewing Holdings Pty., the new name for the Harlin Group. International Brewing was still the largest Fosters shareholder at 38 percent in the early part of 1992, but its dependance on dividends from these shares as its sole source of revenue proved problematic. In March 1992 Bartels resigned as chief executive of Fosters. His resignation, according to the March 3 issue of the Wall Street Journal, came about because of his opposition to increased dividends, for which Elliott and Clark had been lobbying. Bartels was replaced by Edward T. Ted Kunkel, formerly head of the companys joint venture with Molson.

In June 1992 International Brewing was put into receivership by BHP, to whom it owed over A$l billion. In September of that year BHP became the largest shareholder in Fosters, with a 32 percent stake in the company. BHP acquired this share from two sources, the security on its own defaulted loans to International Brewing, and by buying the shares controlled by the Vextin syndicate, a group of banks to whom International Brewing had also owed in excess of A$l billion. Elliott, along with the other representatives of International Brewing, made his final exit from the Fosters board of directors in that month as well. Fosters reported a net loss for the third year in a row in the fiscal year ending in June 1992. The company lost A$951 million in that year, once again due largely to substantial write-downs, many of which were the results of unsound property loans made by the companys defunct investment banking branch.

Concentration On Brewing In Mid-1990s

By the mid-1990s Fosters was a pared-down version of its former self, with sales whittled from a high of A$17.6 billion in 1989 to A$7.2 billion in 1994. Under the direction of CEO Kunkel, who had earned a reputation as a skilled brewer and manager while at Fosters Carling OKeefe subsidiary in Canada, the company turned its attention from the 1980s upheaval to concentrate on the business of brewing and selling beer.

Kunkel soon found that his work was cut out for him; though his company controlled enough brands to give it leading shares of the Australian and Canadian markets as well as a number-two rank in the United Kingdom, its namesake brand, Fosters, was struggling at home. Inextricably linked to the conspicuous consumption of the 1980s, the brand quickly fell out of favor in the recession-battered 1990s. In spite of (some analysts claimed because of) expensive marketing campaigns, the market share for Fosters Lager was halved from about 16 percent in 1987 to seven percent by 1993 as budget-conscious Aussies traded down to cheaper brews. Perhaps more ominously, Australias already-small domestic market was shrinking at an alarming rate due to a combination of demographic, social, and economic factors. Kunkel refused to sacrifice Fosters profit margin, telling Forbes Subrata Chakravarty Im not a discounter, Im a brand builder. Fortunately for the company, many of the beer drinkers who remained opted for another Fosters brew, Victoria Bitter, making that label the nations leading brand by 1993.

Though the company continued to shepherd its namesake brand in the domestic market, it had become clear that Fosters best opportunities for future growth lay overseas. In 1993, the company launched a concerted effort to gain market share on the United Kingdoms leading lager, Carlings Black Label. It was an ambitious goal; at 14 percent of the lager market, Fosters was a fairly distant second to Black Labels 19 percent. On the other side of the globe, Fosters was forging ties to the Chinese beer industry, which was expected to grow at doubledigit rates in the mid-to-late 1990s. In 1993, Fosters took a 60 percent stake in the government-owned Huaguang Brewery and created a second joint-venture with the Princess Brewery. By 1996 the Australian company had acquired a third Chinese interest, the Tianjin Bohai Brewing Company, as well.

Fosters ongoing rationalization program saw the divestment of the U.K. Courage brewing interests and the acquisition of two Australian winemakers, Mildara Blass and Rothbury in 1996. In 1997, Molson Breweries made moves to begin repurchasing the equity stakes held by Miller Brewing Co. and Fosters. That same year, major stakeholders Asahi Breweries and Broken Hill Proprietary announced the impending sale of their stakes in Fosters. Though these types of trades were sure to continue in the years leading up to the 21st century, it seemed apparent that Fosters had left its conglomerate days far behind.

Principal Subsidiaries

Carlton & United Breweries Ltd.; Carling OKeefe Breweries; Inntrepreneur Pub Company Limited; Mildara Blass, Rothbury Wines Limited; Fosters China; Molson Breweries (Canada; 30%).

Further Reading

The Brewers Fight for Survival, Euromoney, May 1990.

Can Fosters Become the Real Thing?, Economist, September 12, 1987.

Chakravarty, Subrata N., Soap Opera Down Under, Forbes, February 15, 1993, pp. 140-142.

Crabbe, Mathew, The Beer Baron Goes Banking, Euromoney, November 1988.

Daniusis, Paul G., Whats Brewing Down Under?, Beverage World, September 1993, pp. 52-55.

Debes, Cheryl, An Aussie Raiders Heady Bid to Buy a British Brewer, Business Week, September 23, 1985.

, An Unquenchable Thirst for Breweries, Business Week, October 19, 1987.

Elders IXL Acquires Over Half of Shares of Australian Brewer, Wall Street Journal, December 13, 1983.

Foreign Beers Raised Highly into China Market, Xinhua News Agency, June 27, 1996.

Foster, Geoffrey, How Elders Grew Up, Management Today, May 1986.

Hemp, Paul, Elders Cleared to Again Seek Allied-Lyons, Wall Street Journal, September 4, 1986.

Hewat, Tim, The Elders Explosion: One Hundred and Fifty Years of Progress From Elder To Elliott, Sydney: Bay Books, 1988.

Karp, Johathan, Cheers: Wheelock and Fosters Plan China Beer Ventures, Far Eastern Economic Review, July 7, 1994, p. 63.

Kilgore, A. A Globalisation of Fosters: A Case Study of Elders IXL, University of Western Sydney, Nepean, School of Business, 1990.

Kraar, Louis, John Elliott: Australias Apostle of Beer and Business, Fortune, January 5, 1987.

Lowenstein, Jack, The Brewers Fight for Survival, Euromoney, May 1990, pp. 97-101.

Maher, Tani, Molson-Elders: A Case of Deja Vu, Financial World, March 7, 1989.

Maremont, Mark, Foreign Beermakers Go Pub-Crawling, Business Week, October 6, 1986.

McMurray, Scott, Elders IXL Has 1% of Anheuser-Busch, Wall Street Journal, September 28, 1988.

Our Turn Now, Economist, April 19, 1986.

Pabst, Fosters Target China, Beverage World, July 1993, p. 18.

Sell, Sell, Sell, Economist, May 5, 1990.

Witcher, S., Australias Fosters Brewing Posts Loss for Third Consecutive Year, Wall Street Journal, September 16, 1992.

, Elders IXL Posts $1.08 Billion Loss for Fiscal Year, Wall Street Journal, September 26, 1990.

, Era Ends at Fosters, Asian Wall Street Journal Weekly, June 8, 1992.

, Fosters Brewing of Australia Names New Chief, Wall Street Journal, March 11, 1992.

Robert R. Jacobson

updated by April Dougal Gasbarre

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Foster’s Brewing Group Ltd.

Fosters Brewing Group Ltd.

1 Garden St., South Yarra
Victoria 3141
Australia
(03) 828 2424
Fax: (03) 828 2556

Public Company
Incorporated: 1962 as Elder Smith Goldsbrough Mort Ltd.
Employees: 15,000
Sales: A$10.37 billion (US$7.13 billion)
Stock Exchanges: Adelaide New Zealand London Amsterdam
Frankfurt Tokyo Montreal New York Toronto
Luxembourg Zurich Basel Geneva
SICs: 2082 Malt Beverages; 5159 Farm-Product Raw Materials, Nee; 5154 Livestock; 5099 Durable Goods, Nee; 6719 Holding Companies, Nee

Fosters Brewing Group Ltd. is Australias largest beer producer and the fourth largest beer maker in the world. Since 1990, Fosters has shifted its interests away from several areas in which it was previously active, including banking and agency for agricultural products, in order to concentrate its holdings on beer production, distribution, and service.

The emergence of Fosters as a major force in Australian business can be traced to the activities of one man, John Elliott. Through an astonishing series of acquisitions over the course of over a decade, Elliott assembled a major conglomerate using a moderately sized jam company as its nucleus. At about the age of 30, Elliott returned to Australia after a brief stay in the United States, where he had worked as a consultant. Beginning in the early 1970s, with his only significant business experience consisting of a short stint at Australias largest corporation, Broken Hill Proprietary Co. (BHP), and a six-year engagement at the American consulting firm of McKinsey & Co. (two of those years in Chicago, the rest in Australia), Elliott set out to conquer the business world from the top, running his own company rather than working his way up from within one. After rounding up about A$30 million in backing from a collection of Australian business leaders, Elliott purchased Henry Jones (IXL) Ltd., a company whose main businesses were making jam and canning fruit. Henry Jones grew during the rest of the 1970s through a series of acquisitions of companies that could provide necessary auxiliary services, including canning, packing, milling, and freezing operations.

One of the companies that had helped finance Elliotts takeover of Henry Jones was Elder Smith Goldsbrough Mort Ltd., Australias leading stock and station agency business. This type of business provided a wide range of agricultural services, including livestock and wool auctioning, real estate services, and farming supply merchandising. The company had been in operation since about 1839. In 1981 Elder Smith became the target of a takeover attempt by the Bell Group, a company controlled by corporate raider Robert Holmes a Court. Elder Smiths management turned for help to Elliott, who suggested a merger to stave off a hostile takeover. What took place was essentially a reverse takeover, with the larger Elder Smith buying out Henry Jones (IXL), creating Elders IXL, and the Jones management team assuming the new companys leadership positions. The IXL part of the name was derived from the name of the most popular brand in Sir Henry Joness jam line.

One important asset that Elder Smith brought into the merged company was its fledgling banking operation, in which it provided farmers with a variety of financial services that included advances, acceptance of deposits, and mortgages. The companys work in the world of finance was expanded in 1982, when, a mere month after the mergers official completion, the company acquired the Wood Hall Trust, a British company with financial interests throughout the Far East and Australia. Elders also diversified into the oil business in 1982, with the purchase of a 19.9 percent interest in Bridge Oil Limited, a large publicly held company.

The next event of great importance for Elders was the 1983 takeover of Carlton & United Breweries Ltd. (CUB), best known as the makers of Fosters, Australias most popular beer. CUB had already purchased a 33 percent stake in Henry Jones in 1980, much of which was Elder Smiths pre-merger holding in that company. CUB had then helped the merger progress by buying Holmes a Courts share of Elder Smith, eliminating the specter of further takeover attempts by him. Between these two actions, CUB had become Elders IXLs major shareholder at over 49 percent by 1983. Toward the end of that year, a bid to take over CUB was launched by New Zealander Ron Brierley, head of Industrial Equity Ltd., an investment holding company. Once again Elliott responded quickly, raising US$720 million in two days with which to start buying up CUB stock. Within a couple of weeks, Elliott had taken control of over half of the brewerys stock, and by the middle of 1984, he had gained full ownership.

The rest of the 1980s was marked by a non-stop series of acquisitions in a variety of industries, including mining operations and more beer companies. One result of this period was a reputation for Elliott as one of a rising breed of Australian takeover artists, a group whose members included Holmes a Court, media mogul Rupert Murdoch, and Alan Bond (also known as the man who took Americas Cup out of America). The takeover of CUB, the largest in Australia up to that time, also created a substantial debt for Elders. The strategy for reducing the debt was to sell off the unprofitable parts of the various acquired companies at the same time new ones were being sought. For example, by the middle of the decade, there was no longer a food division at Elders, whereas food was once the companys core industry. By 1986 the old jam factory in the suburbs of Melbourne, now housing the companys headquarters, was nearly the only remnant of the old version of Elders. Also dumped were the 350 pubs once controlled by Garitón & United. Among the companys purchases during the mid-1980s were a 40 percent stake in Roach Tilley Grice & Co., a major Australian stock brokerage, and a 20 percent interest in Kidston Gold Mines Ltd., both in 1984.

In 1985 Elliott launched a takeover bid for Allied-Lyons PLC, a company four times the size of Elders. Elliotts initial bid for Allied, a British brewery and food conglomerate in which he already held a 6 percent share, totalled $2.3 billion, the money coming from a multi-national banking syndicate led by Citicorp. The move for Allied reflected a desire on the part of Elders management to expand substantially into European markets, prompted by the limitations of Australias population of only 15 million. The bid for Allied eventually reached $2.7 billion, but it was allowed to lapse without achieving its goal. One reason for the failure of the takeover attempt was Allieds merger with the Canadian liquor company Hiram Walker, which was itself fending off a takeover bid. Meanwhile, Elliott once again became involved in a raid orchestrated by Holmes a Court, this time saving BHP, Australias largest corporation, from a hostile takeover. With Holmes a Courts Bell Resources in control of 18 percent of BHP in the midst of its unfriendly bid, Elliott suddenly came up with about 19 percent of that company over the course of just a few hours and was invited to join BHPs board. Though grateful for Elliotts assistance in warding off the raid, BHP in turn purchased 19 percent of Elders in order to preclude the possibility of that company launching a BHP takeover attempt of its own. Before 1986 was over, Elders became the first foreign company to own a major British brewery when it acquired not Allied-Lyons, but Courage Brewing Ltd., Englands sixth-largest brewer. Elders paid $2.1 billion for the brewery and the 5,000 pubs the company also controlled. This purchase greatly expanded the presence of Fosters beer in Europe. Previously there had been a licensing agreement with Watneys.

By the end of 1986, Elders was selling beer in about 80 countries around the world. The companys profit for that year was $143 million, a 73 percent increase over the previous year, on revenues of $5.4 billion. In 1987 Elders made its first North American beer acquisition, purchasing Carling OKeefe Breweries, the third-largest brewer in Canada, for about $300 million. By that year, Elders was the worlds number six beer maker. Once again company records were set for both revenue and profit. Elders reported operating profits of $350 million, a 132 percent jump, on $7.6 billion in revenues in fiscal 1987. It was a big year for Elliott in other ways as well. He was a rising star in Australias Liberal Party, and his Carlton Football Club won the Australian equivalent of the Super Bowl.

In 1988 Elders bought the remaining 60 percent of Roach & Co. Ltd., the stock brokerage into which it had bought five years earlier. That year there was widespread speculation that Elders would mount a takeover bid for Anheuser-Busch, which controlled about 40 percent of the beer market in the United States. These rumors were fuelled in part by the fact that the Bond group, the companys chief rival in its home country, with whom it virtually split in half the Australian beer market, had recently purchased G. Heileman Brewing Co. of Milwaukee, establishing a strong American base of operations. Although Elders held about 1 percent interest in Anheuser-Busch, no action was taken toward a takeover at that time. For the year, sales at Elders once again grew substantially, reaching $11.74 billion.

In 1989 Elders merged its North American beer operations (Carling OKeefe) with Torontos Molson Breweries. At the time of its creation, the joint venture controlled 53 percent of the beer market in Canada. Other events of 1989 reshaped the companys future and ultimately led to Elliotts departure from the company he had built into an international empire. Harlin Holdings Group, a private investing firm owned mainly by Elders managers and led by Elliott, bought a 17 percent stake in Elders to secure the company from bids for control by outsiders. Australian regulators ruled that Harlin had to extend its $3 per share offer to all shareholders. As a result of this decision, Harlin embarked on what amounted to a takeover campaign for Elders, and ended up with a 56 percent holding in the company. This was a far greater share than the group had intended to purchase, and the Harlin group found itself A$2.8 billion in debt.

The solution to this situation proposed by Elliott was to spin off the companys agricultural business as a public company, carry on strictly as a beer operation, and sell off everything else, with proceeds going to the shareholders, the largest of which was Harlin. Harlin would also sell a portion of its holdings in both the remaining and spun-off corporations. In 1990 Elders began actively disposing of its non-beer enterprises. The companys paper, mineral, oil, and gas investments were divested in June of that year with the sale of Elders Resources NZFP to Carter Holt Harvey. Other properties that were sold off included the companys stockbrokerage and investment banking businesses, its North American grain operations, and its holdings in Scottish & Newcastle Breweries Pic. In addition, over 80 subsidiaries were liquidated that year.

While this streamlining process was taking place, Peter Bartels replaced Elliott as chief executive officer of Elders in May 1990. Elliott retained his chairmanship of the companys board. For the fiscal year ending in June 1990, Elders reported the largest loss in the history of Australian business, A$1.3 billion. Much of the loss was attributable to huge write-offs associated with the companys ongoing structural overhaul. The losses were particularly disastrous for Elliotts Harlin Holdings, which had come to rely entirely on dividends from its shares of Elders to make the interest payments on its huge bank debts. Harlin moved to alleviate some of its financial pressure by selling about 20 percent of its holdings in Elders for A$960 million to Japans Asahi Breweries Ltd.

In December 1990, the name of Elders IXL was changed to Fosters Brewing Group Ltd., which better reflected the companys increasing focus on the beer part of its business. Throughout 1991, the divestment of non-brewing properties continued. Elliott was succeeded as chairman by Neil Clark. Elliott continued as a board member, holding one of the three seats controlled by International Brewing Holdings Pty., the new name for the Harlin Group. International Brewing was still the largest Fosters shareholder at 38 percent in the early part of 1992, but its dependance on dividends from these shares as its sole source of revenue proved problematic. In March 1992 Bartels resigned as chief executive of Fosters. His resignation, according to the March 3 issue of the Wall Street Journal, came about because of his opposition to increased dividends, for which Elliott and Clark had been lobbying. Bartels was replaced by Ted Kunkel, head of the companys joint venture with Molson.

In June 1992 International Brewing was put into receivership by BHP, to whom it owed over A$l billion. In September of that year BHP became the largest shareholder in Fosters, with a 32 percent stake in the company. BHP acquired this share from two sources, the security on its own defaulted loans to International Brewing, and by buying the shares controlled by the Vextin syndicate, a group of banks to whom International Brewing had also owed in excess of A$l billion. Elliott, along with the other representatives of International Brewing, made his final exit from the Fosters board of directors in that month as well. Fosters reported a net loss for the third year in a row in the fiscal year ending in June 1992. The company lost A$951 million in that year, once again due largely to substantial writedowns, many of which were the results of unsound property loans made by the companys defunct investment banking branch. Fosters entered the calendar year 1993 a pared-down version of its former self. As beer makers of good international repute, with markets in hand on at least three continents, Fosters may very well emerge from a difficult period intact, once the consequences of its 1980s excesses have been minimized.

Principal Subsidiaries

Garitón & United Breweries Ltd.; Courage Ltd.; Carling OKeefe Breweries; Elders Ltd.; Elders Finance Group.

Further Reading

Elders IXL Acquires Over Half of Shares of Australian Brewer, Wall Street Journal, December 13, 1983; Debes, Cheryl, An Aussie Raiders Heady Bid to Buy a British Brewer, Business Week, September 23, 1985; Hemp, Paul, Elders Cleared to Again Seek Allied-Lyons, Wall Street Journal, September 4, 1986; Foster, Geoffrey, How Elders Grew Up, Management Today, May 1986; Our Turn Now, Economist, April 19, 1986; Maremont, Mark, Foreign Beermakers Go Pub-Crawling, Business Week, October 6, 1986; Kraar, Louis, John Elliott: Australias Apostle of Beer and Business, Fortune, January 5, 1987; Can Fosters Become the Real Thing? Economist, September 12, 1987; Debes, Cheryl, An Unquenchable Thirst for Breweries, Business Week, October 19, 1987; McMurray, Scott, Elders IXL Has 1% of Anheuser-Busch, Wall Street Journal, September 28, 1988; Crabbe, Mathew, The Beer Baron Goes Banking, Euromoney, November 1988; Maher, Tani, Molson-Elders: A Case of Deja Vu, Financial World, March 7, 1989; Sell, Sell, Sell, Economist, May 5, 1990; The Brewers Fight for Survival, Euromoney, May 1990; Witcher, S., Elders IXL Posts $1.08 Billion Loss for Fiscal Year, Wall Street Journal, September 26, 1990; Witcher, S., Fosters Brewing of Australia Names New Chief, Wall Street Journal, March 11, 1992; Witcher, S., Era Ends at Fosters, Asian Wall Street Journal Weekly, June 8, 1992; Witcher, S., Australias Fosters Brewing Posts Loss for Third Consecutive Year, Wall Street Journal, September 16, 1992.

Robert R. Jacobson

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