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Vincor heads off Constellation, for now

By Chris Mercer , 12-Dec-2005

Constellation Brands has seemingly walked out on Canadian wine firm Vincor after its takeover offer expired, but the fall-out is unlikely to hamper drinks industry consolidation trends.

Constellation chairman Richard Sands said the international wine giant would "move on to other priorities" after its twice improved $35 per share cash offer for Vincor International timed out.

"Constellation could not let this process continue indefinitely. The Vincor board refused to engage in any dialogue with us regarding our C$35 per share cash proposal," said Sands.

 

Vincor's board, long opposed to a Constellation buyout, unsurprisingly hailed the outcome as a victory. The board paid for a newspaper advert last month telling shareholders: "Do not tender your shares to Constellation's inadequate offer."

 

It accused Constellation of "grossly undervaluing" Vincor with its initial $31 per share offer.

 

"Vincor is a premium company, with great brands, enviable market positions and a compelling long-term growth strategy," said Mark Hilson, chairman of the group's Special Committee of independent directors.

 

Shareholders will get a quarterly dividend as a reward for their loyalty.

 

Constellation had described the proposed takeover as a "high priority" and announced a couple of weeks ago that it had already secured clearance from Canada's competition watchdog.

 

Some analysts believe it is only half-time in the fight for Vincor.

 

For now, the debacle serves to buck the seemingly endless trend for drinks industry consolidation at the top of the tree - Vincor is itself one of the world's top ten wine firms by sales.

 

The trend has escalated in 2005 with high profile deals such as Pernod Ricard buying Allied Domecq and Diageo spending £700m on acquisitions in the first half of the year.

 

Constellation chairman Sands had, however, previously told analysts that Vincor was not a "must-have" acquisition.

 

He added that Constellation did not need to buy up others to keep its head above water after analysts pointed out that the acquisition of Robert Mondavi and some Ruffino wines had dominated sales rises.

 

Even so, it seems unlikely that drinks industry consolidation will falter because of the Constellation-Vincor tussle.

 

A recent report by Goldman Sachs said the Pernod-Allied deal would improve the climate for price increases and higher value in the drinks sector. "This is an industry that, for all its buoyant volume background, is lacking in pricing opportunities to deliver gross margin expansion," it said.

 

Wine is now seen as one the major growth areas for many drinks firms; consumption in the UK alone has risen 75 per cent in the last 15 years.

 

Goldman did warn, however, that taking on too many brands may be counter-productive. It cautioned Diageo over a deal that allowed it to buy the Bushmills and Montana wine brands out of the Pernod-Allied deal for £520m - advice Diageo took, leaving Montana in Pernod Ricard's hands.

 

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