Outgoing Foster’s CEO, Trevor O’Hoy, has copped a public battering over his failed efforts to integrate the Southcorp wine business with the existing Foster’s beer businesses. The market even gave O’Hoy the ultimate slap in the face by marking Foster’s shares up in a generally red day yesterday (nevertheless, Foster’s scrip still remains at around the same level as back in 2001).

But while O’Hoy was CEO during the Southcorp acquisition, most of Foster’s write-down announced yesterday was due to its lower profile, but more damaging, Beringer purchase. While it was hard to determine courtesy of Foster’s appallingly generous use of acronyms, the group’s US wine business, which was purchased before O’Hoy became CEO, will wipe between $430 and $480 million off FY2008 earnings. The Southcorp write-down was a relatively miserly $170 million to $220 million write-down (although the true cost is likely to significantly exceed that sum).

The Financial Review’s Joanne Grey even noted today that O’Hoy stated “back in 2005” that he didn’t want to do the Southcorp takeover but changed his position after he saw Foster’s then chairman, Frank’s Swan’s “horrified” reaction.

If O’Hoy is the convenient scapegoat for Foster’s Great Wine Adventure, who is to blame for what will end up being a multi-billion fiasco?

When Foster’s bought Beringer in August 2000, Ted Kunkel was CEO. Kunkel was originally recruited from Canada’s Molson’s Brewing and replaced Peter Bartels as CEO of Elders in 1992 after the debacle of the Elliott years. Sadly, after a decade in the job, Kunkel ran out of ideas, turning to the ill-fated Beringer acquisition to boost earnings growth. The acquisition appeared successful at first, with Kunkel exclaiming in the Foster’s 2001 Annual Report that “2001 was a year of tremendous achievement. Foster’s today is a powerful synergistic business.”

Sadly, Foster’s was never able to integrate the contradictory wine and beer business, culminating in yesterday’s announcement. While Kunkel and O’Hoy have paid the price for Foster’s failings, it is interesting to note some of the characters on the Foster’s board at the time the brewer signed off on the wine business purchases.

Chairman at the time of both the failed Beringer and Southcorp acquisitions was Frank Swan. Poor old Frank, a former Cadbury Schweppes executive, sadly now has a legacy which is only marginally superior to Jack Elliott. Swan’s co-directors at the time of the botched Beringer acquisition included:

  • Geoffrey Cohen, a non-executive director was a former partner at Arthur Andersen. Geoffrey has a knack of being in the wrong place at the wrong time, with the accountant facing criminal charges in relation to his role as Chairman of HIH at the time of its collapse. ASIC alleged that Cohen made misleading comments in his address to HIH shareholders in December 2000;
  • Brian Healey, also a non-executive director during the Beringer and Southcorp acquisitions, can mark his Foster’s tenure next to his less than successful Chairmanship of Centro. Under Brian’s steady hand, Centro’s market value has dropped by 97% from its peak. The Centro board, led by Healey, signed off on the value-destroying purchase of New Plan Excel Realty last year; and
  • Lindsay Cattermole, who co-founded Aspect Consulting and briefly joined the BRW Rich List after the business was sold to Kaz Group in 2002. Cattermole was on the Foster’s board during both disastrous acquisitions and is currently a director of Tattersalls which is struggling with the loss of its Victorian pokies licence.

Cattermole remains on the Foster’s board, while Healey resigned from Foster’s in 2005. Another director who signed off on both wine acquisitions was audit committee boss, Graeme McGregor.

It seems like O’Hoy’s shouldn’t be the only head to roll.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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