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Mon, Jan 24, 2005 - Page 12 News List

Foster's takeover of Southcorp could create wine giant


Beverages giant Foster's will create an Australian wine-producing colossus capable of out-muscling "old world" rivals in key global markets if its hostile bid for Southcorp succeeds, analysts say.

Foster's Group launched its US$2.4 billion bid for Southcorp last week after earlier acquiring an 18.8 percent stake in Australia's largest winemaker.

Foster's, already a major player in the global wine market, said the new group would be the "Brand Australia" of the wine-making world -- a daunting prospect for old-world producers such as France and Italy already struggling to match the popularity of new world wines from Australia, Chile and South Africa.

"The acquisition will create the world's largest premium wine company, with leading market positions in key price segments of the Australian, US and United Kingdom wine markets," Foster's said in its official bid document.

FW Holst analyst David Spry said Foster's marketing know-how and Southcorp's established presence in markets such as Britain would make a formidable combination.

"When you're the world's number one by volume it opens a lot of doors and you have far more clout in terms of getting your product onto shelves," he told reporters. "Other international firms would have to be looking (carefully) at a transaction of this size."

Southcorp owns the Penfolds, Rosemount Estate, Wynns and Lindemans labels, while Foster's has Wolf Blass and Beringer, Yellowglen and Jamieson's Run.

Together they sell almost 40 million cases of wine a year worth 2.6 billion dollars in more than 80 countries .

Shaw Stockbroking analyst Scott Marshall said Foster's offer was timely because the global market was recovering from a slump caused by a glut of cheap wine, labelled "two-buck chuck" in the United States.

"That is really starting to wash out of the system now," Marshall told AFP.

He said the market expected Foster's would have to raise its 4.17 dollars a share bid to succeed as it was bidding for premium brands when an industry upswing appeared imminent.

Foster's bought Californian premium winemaker Beringer for 2.6 billion dollars in 2000. Since then earnings from its wine business have rivalled those from the brewing arm that built the company's global profile.

Not all analysts, however, were convinced extending its wine holdings is positive, with international ratings agency Standard and Poor's maintaining a negative credit watch on Foster's as the takeover bid unfolds.

"A successful acquisition of Southcorp would alter Foster's business mix and weight it more heavily to the higher risk wine industry, compared with the contribution from the highly cash generative and more stable brewing industry," SP credit analyst Brenda Wardlaw said.

The takeover would continue a period of consolidation in the global wine industry that saw Constellation Brands complete the purchase of Californian winemaker Robert Mondavi Corp for 1.36 billion US dollars in November.

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