Following its acquisition last week of an 18.8 percent stake in Southcorp, Foster's Group made a takeover offer today worth A$3.1 billion (more than US$2.3 billion) for the entirety of its Australian rival. But the board of Southcorp, Australia's biggest wine producer, has recommended that shareholders reject the proposal, calling it "inadequate and opportunistic" in a statement.
A merger of Southcorp and Foster's, which owns Beringer Blass Wine Estates, would create the third-largest wine marketer in the world, after Constellation Brands and E. & J. Gallo, according to estimates by Impact Databank. Foster's president and CEO, Trevor O'Hoy, said the combined companies would have sales of around 39 million cases, worth more than A$2.6 billion (nearly US$2 billion).
Foster's is offering A$4.17 (US$3.16) cash per share for all of Southcorp's outstanding shares, the same price it paid last week for the shares owned by the Oatley family, the founders of Rosemount winery and the largest shareholders in Southcorp.
After announcing the deal for the Oatleys' 18.8 percent stake, both of the public companies suspended trading in their shares from Jan. 13 until today. Foster's and Southcorp executives spent the weekend in discussions regarding a possible takeover, but no agreement was reached.
Southcorp chairman Brian Finn said the board is "not prepared to recommend the offer as it does not adequately reflect the strategic value of the company." Southcorp is holding out for a higher bid, from either Foster's or another international drinks giant.
Southcorp owns well-known brands such as Penfolds, Rosemount, Lindemans and Wynns Coonawarra and owns nearly 20,000 acres of vineyards in Australia's main wine regions.
Beringer Blass, which was created in 2000 by the merger of Wolf Blass and California's Beringer Wine Estates, is currently Australia's second-largest wine company. It owns brands in Australia and California, such as Beringer, Chateau St. Jean, Meridian, Greg Norman, Stags' Leap Winery and Wolf Blass, as well as wineries in Italy and New Zealand. Foster's also produces and distributes beer, spirits and non-alcoholic beverages.
Both Foster's and Southcorp have seen lower-than-desired earnings recently and could benefit from the cost savings and volume growth that a merger could produce.