Foster's Group Ltd. (FGL.AU) said Wednesday it has rejected a takeover proposal for its wine business from a private equity firm, which valued the unit at up to A$2.7 billion, sparking speculation that a higher bid could come for the wine operations or for Foster's more lucrative beer business.

In a statement, Foster's said "the indicative, non-binding proposal", pitched at A$2.3 billion-A$2.7 billion in cash, "significantly undervalues" its Treasury Wine Estates division and its future prospects. Instead, the group plans to push ahead to split its beer and wine operations into separately listed companies.

"After considering the value range in the proposal, the board of Foster's continues to consider that a separation of the wine business from the beer business through a demerger is most likely to represent the best outcome for all Foster's shareholders," it said.

Foster's first announced plans to demerge its underperforming wine operations from its beer business in May.

The group spent around A$7 billion building its wine business in the past decade, including the A$3.1 billion acquisition of Southcorp in 2005, which added brands including the upmarket label Penfolds and Rosemount to brands like Beringer, transforming it into one of the world's largest wine groups.

But Foster's has been forced to take around A$3.47 billion in writedowns and goodwill impairments against its wine business since 2004 amid a global glut of supply and currency headwinds.

The book value of the wine business was A$3.2 billion at the end of June. Morgan Stanley analysts said in August it could be worth A$3.5 billion-A$4 billion.

Foster's shares rose sharply on the back of the approach as investors bet that the offer could flush out other potential buyers or even prompt a full bid for the group. At 0105 GMT, Foster's was up 4.9% at A$6.37.

"Given that the wine business was previously viewed by some as a 'poison pill', this expression of interest should provide some comfort to any acquirers looking to spin-off the wine assets," Goldman Sachs analysts said. They value the wine business closer to A$3.3 billion.

Foster's and its units have been the subject of takeover speculation for a number of years as the global beverages sector consolidates.

Last month, a report in the U.K. said that SABMiller PLC was considering a bid for the beer division, while groups including Japan's Asahi and Canada's Molson Coors have also been speculated as possible buyers. The Australian media has previously speculated that China's Bright Food might be a potential candidate to buy the wine operations.

This isn't the first time Foster's has been approached by private equity groups, after former Chief Executive Trevor O'Hoy, who was the architect of Foster's renewed push into wine in 2005, said the group attracted private equity interest in 2007.

The latest approach from the international private equity group also confirms Australia remains firmly on the radar of buyout groups.

Foster's said its wine business is well positioned to grow over coming years, and is making significant progress in implementing a transformation program initiated to turn the operations around. The wine unit saw earnings fall 27% in the year to June 30 to A$221 million, hurt by the strength of the Australian dollar.

The company is continuing to progress its demerger plan, but will consider any proposal that is in the best interests of its shareholders, it said.

A spokesman for Foster's declined to identify the private equity firm behind the latest approach.

-By Lyndal McFarland, Dow Jones Newswires; 61-3-9292-2093; lyndal.mcfarland@dowjones.com

(David Rogers in Sydney contributed to this article)
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