Foster's secures Southcorp UPDATE

Published: 23 July, 2008

Four months after first tableing a bid, the Foster's Group is now just a week away from assuming total control of Southcorp, having announced this week that it has acquired 92% of its Australian rival's shares.

Foster's said in a statement that the company's offer for Southcorp was extended by eight days and now closes today, following which Foster's will commence compulsory acquisition of the remaining Southcorp shares.

Upon completion of the deal, both Southcorp and Beringer Blass Wine Estates (BBWE) will become part of a renamed company known as Foster's Wine Estates, which, along with Carlton & United Beverages, will in turn be part of Foster's Australia. Foster's has appointed Jamie Odell, who is currently the MD of BBWE, to head up the expanded wine division.

Following the announcement, Southcorp's managing director and CEO John Ballard and five other directors have 'retired' from the Southcorp board and have been replaced with three new directors appointed by Foster's: Frank Swan, chairman of Foster's; Trevor O'Hoy, president of Foster's; and Brian Healey, Foster's group director.

Southcorp chairman Brian Finn will remain on the board along with former director Helen Lynch.

Finn commented: 'Foster's is now majority shareholder and it is appropriate that Foster's representation on the board reflects that. & Under Ballard's leadership, the Southcorp management team and people throughout the company have done a great deal to restore the company to a sound footing.

'For the benefit of our people and our brands, I hope that we are able to move through this interim phase very quickly and can soon begin to work in earnest with Foster's to build the world's largest premium wine business.'

The company said that most integration activity will take place only after Foster's has undertaken a detailed review of Southcorp's business in each of its markets, which it estimates will take around two months. The company added that the integration of the BBWE and Southcorp sales and marketing teams in Europe is expected to start before that in the rest of the world due to the 'complexity of customer relationships'. However, Southcorp's sales and marketing teams will remain 'stand-alone' until early 2006.

Odell would not comment on how the merger would affect wineries, staff and its brands, and said that more details would emerge in 'August or September'. He added: 'I think that's fair, because these are large, complex sites and it takes a measured and balanced approach to really understand what needs to be done.

'What we don't want to do is jump to early judgements and find that that's unsettling for individuals, or end up making the wrong decisions.'

O'Hoy said the move 'marks a milestone in the history of Foster's and Southcorp. Together we have created the world's leading premium wine company and the only Australian consumer goods company to achieve global category leadership, as well as Australia's leading multi-beverage business. We are proud to lead the further growth and development of an unrivalled portfolio of premium beverage brands.

'Our immediate challenge and priority is to stabilise and grow Southcorp's brand portfolio and ensure business continuity throughout the integration process. We will seek to bring together the best of both businesses by taking a measured and inclusive approach and upholding the principles of dignity and respect.'

O'Hoy received criticism over the bid at an analysts' briefing held last Friday, however. 'You've got some formidable hurdles here when you've paid such a high price for such a low-profit-generating business,' said David Errington of Merrill Lynch, who also questioned the wisdom of buying at a time when the Australian grape glut is in full swing. Analyst group Macquarie Research also questioned the deal. 'This acquisition carries significant integration risk; Southcorp's brands remain in a relatively fragile state; and Foster's is increasing its exposure to the Australian wine surplus,' it told its clients.

O'Hoy, however, remained bullish. 'Quite clearly a lot of consolidation is going on around us and accelerating. To be caught in the mid-space, as we call it, is not where you want to be. We have to be in the top one or two in our category, and I'm pleased to say we are going to be there.'

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