Foster's secures Southcorp bid approval

Related tags Southcorp Pernod ricard

Foster's look set to win its long battle to buy Australian winery
Southcorp after grinding down board members' resistance to a deal
that could spawn a formidable 'brand Australia' on the world wine
market, reports Chris Mercer.

Southcorp said that a majority of its board members have advised shareholders to accept a A$3.17 billion (£1.3 billion) takeover bid by fellow Australian drinks firm Foster's. The bid values Southcorp's shares at $4.26 each.

Southcorp's CEO John Ballard rejected Foster's bid, as he and others have done since Foster's began stalking the winery in January. But now, a boardroom revolt may clinch the deal.

"While the board believes that Southcorp would have a viable future as an independent company, the majority of non-executive directors recognise that there has been a period of market uncertainty that, if allowed to continue, is likely to reduce the value of the company,"​ said company chairman Brian Finn.

If shareholders agree to the deal, Foster's will get access to Southcorp's strong brand portfolio including Lindemans, Rosemount and Penfolds.

Foster's said these would fit alongside Foster's existing wines, including Mildara Blass and Beringer, to form the world's leading premium wine company.

The firm, which bought almost 19 per cent of Southcorp in January, also said that combining the two firms' brands could create a significant force in Australian wine, combatting other domestic firms BRL Hardy and Orlando Wyndham, which are currently owned by overseas groups (Constellation Brands and Pernod Ricard respectively).

UK consumer group Which? recently named Lindemans Cawarra Cabernet Merlot as one of the best value for money wines on the UK market at £4.99, despite criticising the overall quality of the big brands. The UK buys around 39 per cent of all Australia's wine exports.

A Foster's-Southcorp deal would also provide useful consolidation in an industry facing tough market conditions.

Some analysts predicted 2005 would be a hard year for Australian wine amid concerns of a further slow down in exports, partly due to the strong Australian dollar and knock-on effect of a red wine surplus that could push down prices.

Statistics released in September showed that red wine exports in 2003-2004 only rose by 13 per cent in volume on those in 2002-2003. Growth was almost twice as high in the two years previous.

Both Southcorp and Foster's have also recently suffered disappointing wine sales in the US and John Band, analyst for market research group Datamonitor​, said it made sense for Foster's to move now.

"Foster's is in a good position to increase its market strength against Diageo and Allied Domecq, who are attempting to do to wine what they've done in spirits. At the moment, being a smaller company with some brands is not good enough,"​ he said.

Band said the takeover would also give Foster's a useful path out of beer and that the firm actually sold more wine than beer in 2003.

If the company's bid is successful, the joint group will have total sales of about A$4.8 billion and wine sales of more than A$2.6 billion.

Foster's would have dominance in the $5 to $10 price categories, and therefore a solid platform to compete from in the global wine market.

In February, Southcorp recorded a dramatic return to profit for its 2005 first half after two years in the doldrums. Revenues went up 2.9 per cent to $574.4 million, lifting net profits by half to $60.6 million.

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