Now that Constellation Brands has finished swallowing the Robert Mondavi Corp., the world's largest wine marketer is ready for its next meal. Last week it made an appetizer of Hahn Estate's Rex Goliath line of California wines. But the company's next intended course might not go down quite as easily.
On Sept. 28, Vincor International, a Canadian company that has become a major player in the global wine market with brands such as Hogue and Toasted Head, confirmed that it had rejected an unsolicited offer from Constellation for CAN$31.00 (US$26.45) per share in cash. That proposal, made on Sept. 9, is valued at about CAN$1.4 billion (US$1.2 billion), including the assumption of around CAN$305 million (US$260 million) of Vincor's debt.
"We believe their bid is opportunistic and inadequate relative to the growth prospects of Vincor," said president and CEO Donald Triggs, noting that the company had not received a formal offer. "We took their bid seriously, hired special bankers, but the board rejected the offer as inadequate. It was priced off the company's 52-week low [of US$22.20 per share]."
Vincor has advised Constellation that it is willing to consider higher offers that it believes more accurately reflect the value of its business. Meanwhile, Triggs said, the company will contact other potential bidders and consider its options. "There are at least CAN$100 million in synergies by combining the two companies," he said. "Constellation is one of five suitors that have similar synergies."
Constellation's offer, said chairman and CEO Richard Sands during a conference call on Sept. 28, was made on "publicly available information," and the company will not consider increasing the bid unless Vincor enters into negotiations and shares certain information. "We've made it crystal clear to the Vincor management during the past three weeks that we would be willing to discuss a higher price," he said.
Sands said Constellation is "committed to moving ahead" on the purchase with whatever means it has available. (Read about how he pursued the Mondavi deal.)
The conference call was basically Sands' opportunity to lambaste the Vincor board and to reiterate to shareholders that they are missing out on a "significant" cash premium. He said Constellation is "disappointed that the Vincor board has refused to engage in meaningful discussion with us regarding our proposal. We are baffled by their response and quite honestly consider that it's not in the shareholder's interest."
Sands was vague about why Constellation wanted to buy Vincor, avoiding several questions to name specific Vincor brands, divisions or distribution regions that particularly appealed to his company. "We don't really say, 'Oh, this part [of the company] is the most exciting and this is the least.' There are synergies--significant synergies--for this combination," he said. "This is a natural acquisition for us because it expands our business. We think this is a very good strategic fit."
Established in 1993, Vincor International has grown from Canada's largest wine company into one of the world's largest wine producers, marketers and distributors, partly through the development of new brands and partly through a 10-year buying spree guided by Triggs, its first and only CEO. Its annual sales are CAN$650 million (US$554 million), and its stock price was sitting at CAN$23.47 (US $20) prior to the announcement.
In Canada, Vincor owns wineries from Ontario to British Columbia, including renowned ice-wine producer Inniskillin, Inniskillin Okanagan, Jackson-Triggs, Sumac Ridge and Hawthorne Mountain. Its global assets include R.H. Phillips of California, Hogue Cellars in Washington, Amberley Wines and Goundrey Wines in Australia, Kim Crawford Wines in New Zealand and Kumala Wines in South Africa. Vincor is a partner in three joint ventures: Le Clos Jordan in the Niagara Peninsula, with Burgundy's Boisset family; Osoyoos Larose in the Okanagan Valley with Groupe Taillan of Bordeaux, and Nk'Mip (Inkameep) winery in British Columbia with the Osoyoos Indian tribe.
Constellation has grown even more aggressively in recent years. In addition to the Mondavi and Woodbridge brands, the company has purchased Australia's BRL Hardy, California wineries such as Simi, Franciscan, Ravenswood and Blackstone, and 40 percent of Ruffino in Italy.
Last week, Constellation gobbled up Rex Goliath, a fast-growing California value brand that bears a giant rooster on its label. While the sale price was not disclosed, sources close to the deal said it was upwards of $40 million. Hahn launched Rex Goliath in 2002 with an initial 25,000-case release, and the brand had grown recently to 500,000 cases. The Hahn family had not been looking to sell, but Constellation approached it. "Rex Goliath is a wonderful addition to our portfolio," Sands said. "The brand clearly has been embraced by consumers across the U.S."
In the event that Constellation does manage to buy Vincor, the company has already assured Vincor's board that it has no plans to disassemble the holdings. "We do not believe that the highest value can be achieved by decimating Vincor's organization," Sands said.
Sands claimed that Vincor, as it is currently structured, does not have the economy of scale to survive in an increasingly competitive world market. But Triggs disputed the idea that his company would be better off selling, despite the ongoing consolidation in the alcoholic beverage industry.
"We strongly believe the company is competitive and well-positioned to grow on its own. We have strong brands, cash flow is excellent, we generate $30 million to $40 million in free cash every year. We have a strategic plan, which has set a goal of being in the top five companies within the next five years," Triggs said, explaining that this includes increasing international sales of its brands and continuing to acquire other companies. "Given the opportunity to do that, this company can get there."
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