Topsy-Turvy
Down Under
By Tom Allan
 It would appear that the world's investment
bankers have acquired an insatiable thirst for Australian wines.
Keeping track of the Aussie wine industry these past few months
has been a job for money people, not the cork types.
Breweries buy wineries to keep from being bought by other brewers,
and wineries buy each other to keep from being bought by
distillers. The drunks are running the tasting room…
Let's look at a few of the deals:
Fosters buys Beringer
This was a biggie. Beringer is no stranger to foreign
ownership, having been the property of the Swiss company Nestle in
a former life. The shock was having Jacob & Frederick
Beringer's 125 year-old hand chiseled aging tunnels snapped up by
a crocodile-wrestling CO2 belcher.
Granted, Fosters already owned the Mildara Blass family of
brands, but the Beringer acquisition shifted the company's asset
allocation from mostly beer to 60% wine. So, it's no surprise that
shareholders voted May 28th to change the name of the corporation
from Foster's Brewing Group Ltd to Foster's Group Limited.
The Price: US$1.2 billion or 13.6 times EBIT (earnings before
interest and tax expense). More on this later.
Southcorp buys Rosemount (or does it?)
Did you know that in addition to Penfolds, Lindemans and
Coonawara, Southcorp is also one of the world's largest
manufacturers of water heaters? Poetic justice for one of
Australia's hottest exporters (sorry, I couldn't help the pun).
Southcorp has been looking to divest non-wine assets for the past
couple of years, beginning with the sale of the small appliance
division and the pending divestiture of their international
packaging arm. Look for water heaters to take the gas pipe by the
end of 2001.
So, what to do with all the money generated by the asset sales?
If you hold on to it too long you're bound to get bought up by one
of the world's 800lb gorillas of the drinks biz (no need to name
names). So… buy your competitor. Southcorp spent US$762 million
to buy 4.2 million cases of Rosemount. The Southcorp board is now
stocked with Rosemount people, and the announcement came down this
week that the Southcorp CEO will step down in June to be replaced
by the former Rosemount CEO, Keith Lambert. Now, who bought who?
The Price: US$762 million (at current exch. rates) or 13.9
times EBIT (right in line with the Fosters/Beringer deal).
And, finally…
BRL Hardy attempts to buy KJ
(or 'the goldfish swallows the carp…and gags')
Not too many years ago, you would have been hard-pressed to
find a local wine consumer or merchant who had heard of BRL Hardy.
Australia's third largest winery just wasn't much of a US player.
They attempted to change that in a single deal this year when they
entered the bidding for privately held Kendall-Jackson Wine
Estates Ltd.
KJ, of course, constantly denies being for sale. The lady doth
protest too much, methinks. A sure sign that a company is in play
is when said company vehemently denies being in play. KJ changed
approaches recently and 'sort-of' put their company up for sale to
the highest bidder…….but that bidder better be really high.
Hardy was competing with Diageo PLC (UDV/Guinness/Scheiffelin)
and Brown-Forman for control of Kendall-Jackson. All the reports
listed the value of KJ at between US$1.3 and $2.0 billion. Wow.
I'm not sure where the valuation comes from (since KJ is private),
but it sounds like it came from a very proud KJ accountant.
Without any publicly available data, we have to infer some numbers
based on KJ's public competitors.
We can use Robert Mondavi Corp as a comparison even though the
product mix is broader at RMC. The numbers won't be perfect, but
we're just talking story here, right? I figured out the EBIT % for
Mondavi from their annual report (no inside info) and applied it
to KJ's estimated revenue of $362 million on sales of 3.65 million
cases.
Here's what we get:
The Price (maybe): US$2 billion or 28 times estimated EBIT!
Two weeks ago KJ pulled itself off the market. No longer for
sale. Either nobody was willing to pay 28x or Jess didn't think
that price was high enough. Trust me, this is not the last you
will read of a pending KJ sale.
Conclusion: Take a Dramamine and strap yourself in.
The deals are far from done. Word is that Heineken has it's eye
on Fosters, Diageo and Allied Domecq have been snooping around
everybody's books, and Fortune Brands (Peak, Beam, Absolut) might
be the next suitor for KJ. Keep your ear to the ground and listen
for the next rumblings from Down Under.
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