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The Sydney Morning Herald

BRL Hardy in $5bn merger talks

Author: Mark Todd
Date: 14/01/2003
Words: 516
          Publication: Sydney Morning Herald
Section: Business
Page: 23
BRL Hardy is involved in talks which could lead to a $5.2 billion friendly merger with America's second biggest wine producer, Constellation Brands.

Shares in BRL Hardy jumped 22c to a two-month high of $7.67 yesterday.

The Adelaide-based wine maker is expected to make an announcement as soon as today.

Any deal would follow a series of mergers in the wine industry over the past two years. Recent deals included the mergers of Southcorp and the Oatley family's Rosemount Estates, and Brian McGuigan Wines and Simeon Wines.

It is believed that Macquarie Bank is one of the advisers on the deal. BRL Hardy chief executive Stephen Millar was not available for comment.

During the past 12 months analysts have valued BRL Hardy shares at between $8 and $10 apiece. Any offer from Constellation is expected to come at a significant premium to the prevailing market price, but the final details of the bid aren't expected for a few days.

A bid at the mid-point of the range would value all of BRL Hardy at just under $1.6 billion.

``We'd see a merger between BRL and Constellation as a positive for both groups," said Rupert Clifton-Bligh, group investment manager for the International Wine Investment Fund, which is the largest stakeholder in BRL with a 12 per cent holding.

``You'd end up with a fairly large wine group in a global sense that would produce close to 60 million cases of wine annually at a wide range of price points and with broad geographical distribution.

``It would be a model, I think, for what a strong global wine company would look like."

However, Mr Clifton-Bligh said any merger would first need to be on attractive terms for BRL Hardy shareholders.

BRL Hardy and Constellation established the Pacific Wine Partners joint venture in the US about 18 months ago. The venture has targeted production of 5 million cases inside five to 10 years which would value the business at up to $5 billion.

It is expected that BRL Hardy will argue that a merger with Constellation is the best bet for securing the company's future in a rapidly consolidating industry.

Wine retailers both here and around the world are banding together too, and demanding from producers broad ranges of products at an equally wide range of price points.

This has led to tighter margins, evidenced at home last year by an aggressive bout of discounting led by Southcorp in an effort to shore up shelf space.

BRL Hardy, which has a market capitalisation of about $1.36 billion, produces about 20 million cases of wine not only from Australia but also France, South Africa and New Zealand. It has a strong distribution network in the UK.

Constellation, which has a market value of $3.9 billion, and makes upwards of 40 million cases of wine a year, would benefit from channelling BRL Hardy's leading Australian brands, such as Nottage Hill, Banrock Station and Hardys, through its extensive US distribution system.

The pair could make significant savings from combining their UK distribution networks.

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