SPECULATION increased yesterday that the Fosters brewing group is

close to a decision on whether it will sell its Courage subsidiary in

the UK to Scottish & Newcastle or else float it off as a wholly separate

company.

That was after Fosters chief executive Ted Kunkel said in Melbourne

that the Australian parent acknowledged that something had to be done

and that it had to get a resolution to its in-going involvement in the

UK. He added that he had nothing to say at present but Fosters knew the

market extremely well and also the strategic options.

However, nothing will be done until the Office of Fair Trading

completes its newly started investigation into the pricing differentials

between supplies to tenants and the free trade of up to #100 a barrel.

That should take no more than three months.

Courage increased net profits last year by 17% to A$118m (#56m) but

by24% in sterling terms.

It has increased market share with volumes rising by 2.4%.

Overall, Fosters' net profits after tax fell 3% to A$203m in the six

months to December. Courage is one of the most aggressive players in

both the free trade and the supermarket off-licence sectors. Its

supplying of pub companies is one of its major growth points.

It has a market share of about 18% compared with S&N's 13%. Scottish

and Newcastle has a target of an overall UK penetration of 20%. The

Edinburgh-based company would be prevented by the Monopolies and Mergers

Commission from buying the whole of Courage.

However, there has been persistent talk that either Whitbread and

possibly Allied Domecq could take a proportion of the Courage operations

to leave three companies with a market share of about 20% and strong

enough to fight Bass at 23%.

Paradoxically this is the reverse of the position when Fosters as part

of Elders tried to buy S&N but was seen off by the MMC.

A flotation is complicated by the complex relationship with Grand

Metropolitan on the joint ownership of the Inntrepreneur Estates chain

of 6000 pubs. There is the issue of how many of these will become untied

from Courage as the supplier in the event of a sale.

But anything between 2500 and 4500 may be freed which would depress

brewers margins as pub owners could buy where they wished and also give

further opportunities to the pub companies. Overall, the industry would

prefer a break-up of Courage. S&N would benefit from taking over some of

Courage's assets by having a much greater exposure to the south of

England.