Constellation determined to seal Vincor takeover
fellow top-ten producer Constellation Brands, prompting a shouting
match between the two, yet the march of industry consolidation may
be hard to halt.
Vincor said Constellation had made "an opportunistic and inadequate approach" that "grossly undervalues" the company's growth prospects. Constellation valued Vincor at C$31 per share (US$26, €21.6), or $1.2bn in all.
Donald Triggs, Vincor's president, said the firm had identified around C$16m in annual cost savings and expected to realise $5m of that this year. "Constellation's approach does not fully value these savings, the momentum of our premium brands and Vincor's projected organic growth," he said.
Constellation called the Vincor reaction disappointing and re-affirmed its desire to push ahead with an aggressive takeover.
"This initiative is a high priority for us, and we are committed to making this combination a reality," said Constellation chairman Richard Sands, adding that the firm "would be willing to offer a higher price".
Vincor, which owns a range of brands including Kumala and Kim Crawford, said that Constellation had given it a new price indication of C$36 per share immediately before releasing its statement.
Sands, unsurprisingly, believes Vincor's shareholders can be won over by its offer of "an immediate cash premium far greater than we believe the company can deliver on its own, given today's increasingly competitive and consolidating global wine industry."
He said Vincor, despite being one of the world's top ten wine producers, faced difficult operating conditions in markets such as the US, UK and Australia because it lacked scale.
And Vincor's board admitted it would consider bowing to the trend for wine industry consolidation if the proposal "accurately includes the company's prospects and reflects the vast synergies an acquirer would realize".
Consolidation has long been an issue in the world wine industry with its long tail of small producers.
But, events this year, such as Foster's' takeover of Southcorp and Pernod Ricard's acquisition of Allied Domecq, show the trend is becoming increasingly common among the big market players.
Such moves may, nevertheless, reverberate down the market, putting ever more pressure on small-to-medium wineries to compete with international conglomerates.
Almost half of the Australian wineries that participated in a recent financial survey by Deloitte reported pre-tax losses for 2004. Small-to-medium businesses in the AUS$10m to $20m (€6.26m - €12.52m) revenue range were the worst hit, recording average losses worth 8.7 per cent of sales.
Deloitte warned that the situation was unsustainable. Stephen Harvey, leader of Deloitte's Wine Industry Group, said that many wineries may be forced to merge or exit the market.
