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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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