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Australian Wine Giants Southcorp and Rosemount Merge in $778 Million Deal

Harvey Steiman
Posted: February 26, 2001

As predicted, wine giants Southcorp and Rosemount Estates pulled the trigger on a deal on Tuesday in Australia to merge the two companies and put the Rosemount management team in charge. Southcorp issued 94.3 million shares at A$5.50 (about US$2.87) per share to acquire Australia's largest family-held wine company for A$1.49 billion ($778 million). The price includes some A$90 million ($47 million) of debt.

The merged company becomes the largest wine group in Australia, with sales of about A$1.1 billion ($575 million), more than BRL Hardy or Beringer Blass, the wine company formed by Foster's Brewing Group's $1.5 billion acquisition of California's Beringer Wine Estates last year. Revenue expectations were higher, but on Tuesday in Australia, Southcorp announced a 12.3 percent drop in half-year profits to A$80.3 million ($42 million). Southcorp's share price rose on the merger news, however -- although Standard and Poor's reportedly revised its ratings outlook on the company from stable to negative.

The publicly held Southcorp had been rumored to be facing a possible takeover bid from British drinks giant Allied Domecq. Southcorp owns such high-profile brands as Penfolds, Lindemans, Seaview, Seppelt and Wynns Coonawarra, and is involved in two joint-ventures: La Perouse, in France's Languedoc-Roussillon region, and Seven Peaks, in California's Central Coast. Its 15,000 acres of Australian vineyards make it a production powerhouse.

Rosemount, founded and owned by the Oatley family, produced 4.5 million cases in 2000 from more than 5,000 acres of vineyards it owns in several Australian wine regions. It's currently the second best-selling Australian brand in the United States, according toImpact Databank. And last fall, Rosemount formed a joint venture with Robert Mondavi Winery of California to produce and market two new lines of California and Australian wines.

"Rosemount is an excellent strategic fit with Southcorp and also delivers significant cost savings and synergies through the consolidation of the two businesses," said Rick Allert, chairman of Southcorp.

With Lindemans and Rosemount, the combined company will have two of the top 10 imported wine brands in the United Kingdom and the United States, a bigger key to the deal than the best-known brand in the mix, Penfolds. Penfolds makes Grange, Australia's most famous wine (the 1990 vintage was Wine Spectator's Wine of the Year in 1995), but it also produces under-$10 wines that rate as Wine Spectator Best Buys. Rosemount is best known for its "diamond-label" Shiraz, a perennial Best Buy, but it also makes Balmoral, a top-level Syrah, and Roxburgh, a highly regarded Chardonnay.

As expected, Keith Lambert, CEO of Rosemount, will be in charge of the new company. Lambert and Rosemount chairman A.G. (Sandy) Oatley join the Southcorp board of directors immediately, and Rosemount founder Robert Oatley is expected to join the board later this year and become deputy chairman. Lambert has assembled a management team that will include key Southcorp executives, as well as individuals from the Rosemount organization. Rosemount managing director Chris Hancock is heading the transition effort.

"Keith and I will start going around and speaking with everybody from the grass roots up to the top, starting immediately," Hancock said by telephone from Sydney, where both companies have their wine headquarters. "I don't anticipate any real issues. This is not a slash-and-burn kind of thing. It's a very synergistic combination, and we sense a lot of good will."

No jobs are expected to be lost in the transition, Hancock emphasized. "We expect everyone's efforts to be required by extra growth," he said.

Rosemount winemaker Philip Shaw will share the position of chief winemaker with Southcorp's John Duval, who currently holds the title. Duval will be responsible for all of Penfolds' wines, and Shaw will manage the rest of the winemaking team for all the other brands, Hancock said. They will both report directly to Lambert.

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