QUESTION 1 Many crities of the Foster's Group Ltd takeover of Southcop Ltd cited a strategic eor in judgement of the Foster's Group Ltd board. Foster's Group Ltd also took on significant debt to purchase American wine interests. Their main concerns were firstly, that the board paid too much and secondly, that the wine and market operates differently to the beer market. Just because both are alcohol-based products does not mean they are similar to operate. Commentators believed that the beer business was a good cash business and one that is generally robust in down times. (People still like their beer was more competitive and had an overabundance of supply that would make it hard for the Foster's Group Ltd to strategically brand. The investment in the wine businesses would also take leadership time away from the beer business as the Foster's Group Ltd spent time on growing the wine business. Approximately five years after the Southcorp Ltd takeover the Foster's Group Ltd entered into a scheme of arrangement to demerge the beer business from the wine business. In May 2011, sharcholders in Foster's Group Ltd received one share in Treasury Wine Estates (the new company for the wine business) for every three shares they held in Foster's Group Ltd Following the split, the Foster's Group Ltd assumed most of the debt. Below is some financial information regarding Foster's Group Ltd at takcover and demerger times even in recessions.) However, the wine market Demerger Takeover 2010 2005 2004 2011 S'000 $'000 $000 $'000 523.4 6570 Net cash flows from operating activities7495 Net cash flows from investing activities Net cash flows from financing activities Total cash flows Ending cash balance Net profit from continuing operations 34.7 938.1 209.7 (705.9) (735.8 1 885.3 (1 225.4) 89.9 2 314.3 (166.1)109.0$94.4 236.7 553.0 3 369.7 706.8 799.3 (99.1)(94.9) 791.9 936.1 1 046.9 Net finance income/(costs) Total assets Total liabilitics Non-current interest bearing liabilities 16.3 (118.8) 2997.3 6 829.8 11 745.3 8443.1 2597.74114.4 4944.1 4 600.2 | 573.5 | 2 242.6 | 4 431.6 | i 259.6 REQUIRED: a) Judge whether you feel the critics were correct in their assessment of Foster's Group Ltd entry into the wine market. b) Confirm whether Foster's Group Ltd is a good 'cash' business