Much of the steam went out of the Foster’s share price this morning, despite the grog group producing a profit that was better than market forecasts, but that had been outlined by the company in previous guidance.

At 11am the shares were down 31 cents, or 3.3%, to $6.05, reversing much of the 44 cent, 7.4% rise yesterday on speculation that SABMiller, the world’s second largest brewer, was stalking Foster’s with the aim of snapping up the CUB brewing business once Foster’s separates its beer and wine business next year.

It’s not the first time these stories have emerged since 2006; there have been at least two bursts of speculation that a “foreign” beer group was stalking Foster’s. The previous candidate was Molson Coors, which has a 5% stake via an option deal. The share price surge, and then falls as the stories lose their impetus.

But they have been before Foster’s set entrain the separation of its beer and wine business as it finally rejected the idea that there were synergies and cost savings from combining two types of alcohol that have very different marketing requirements and messages for consumers.

That separation is largely complete in Australia, as Foster’s confirmed this morning, so the way could be open for a cleaner bid via a high-price approach to Foster’s next year.

But the wine business is providing a nice defensive hedge for the Foster’s board at the moment, protecting it from takeover because the wine business is unwanted here and globally thanks to over-production, weak sales in key markets and intense competition.

Foster’s chief executive officer Ian Johnston said evaluation of issues, costs and benefits of a potential demerger were on schedule and the operational separation of its wine and beer operations in Australia was now substantially complete.

“‘Management, logistics and capital structure deliberations are progressing well with the process of seeking the necessary tax rulings to commence shortly,” he said in a statement.

“While no final decision has been made, the timeline for a potential demerger remains the first half of calendar 2011.”

The 4.1% fall in net profit reported this morning excluded the $1.27 billion in write-offs from the faltering wine business that have already been announced.

Weaker demand for bulk beer in Australia (but not premium beer) and the strong Australian dollar hit the company’s profits, but the group had already alerted the market to the probable impact in previous trading updates.

Foster’s said net profit before one-off items fell to $711.3 million from $742 million in 2009. That was well above the $680 million market consensus from analysts.

Sales fell 4.8% to $4.461 billion. CUB earnings rose 5% to $904.1 million and included $34 million of benefits from efficiency programs. Foster’s said that in 2010, its wine business, now called Treasury Wine Estates, had generated stronger earnings in the second half on the back of improving sales focus and benefits from efficiency programs. On a constant currency basis, earnings rose 20.5% to $221.3 million.
But unfavourable exchange rate movements reduced earnings by $123 million.

Besides SABMiller, Asahi Breweries of Japan is said to be interested in Foster’s beer business as it seeks to follow its more aggressive peer, Kirin, offshore. Kirin already has a big foothold in the Australian beverage market, controlling Lion Nathan, National Foods, Dairy Farmers and Berri Fruit Juices

SABMiller already has an involvement in Australia with a joint venture with Coca-Cola Amatil in that company’s emerging Blue Tongue brewing business. Coca-Cola Amatil is the Australian distributor of some SABMiller brands such as Peroni of Italy.

A move on CUB would almost certainly force divestment of the stake in the Coca-Cola brewing business. Coca-Cola Amatil’s CEO Terry Davis told Business Spectator earlier this month he couldn’t make the numbers stack up on a Foster’s takeover for his shareholders.

But Asahi could make the buy with no restrictions, apart from foreign investment rules (which would apply to SABMiller). The Japanese companies are facing falling sales and profits and need geographical diversification, and have been paying high prices (or offering them) to achieve it). Asahi’s customers are ageing, not buying as much beer and deflation is cutting returns. It’s more desperate than SABMiller.