Terry Davis is the Managing Director of the Foster’s wine division, which combines the leading wine groups of Mildara Blass Limited and Beringer Wine Estates. Today he heads a business with annual sales of more than 14 million cases worldwide and is responsible for integrating the two companies and taking advantage of the opportunities that the Beringer acquisition brings. How was it that Foster’s was able to buy the Beringer business ahead of so many other Australian and American interests? We focused on it solely. We weren’t talking to anyone else and we told the Beringer management so. We’d done all our research and without wishing to flatter their egos told them they were the stand out choice (for our expansion into the US market) and that if they were serious we should start haggling over a deal. If Beringer had merged with Kendall-Jackson, there would have been blood on the tiles. You can only have one chief winemaker, one head viticulturist and so on and this played on the minds of those at TPG, (Beringer’s major shareholder with 76% of voting stock). The negotiations between Beringer and Kendall-Jackson had reached that tit for tat stage when for every employee to be lost by one company, one had to be lost from the other, rather than letting the best person come out from the fold. Jess Jackson also wanted to keep some vineyards and one winery off the books, so it all became rather impossible. Furthermore, TPG has investments in thirteen other major US companies, so how they conducted themselves on an exit like this was closely observed by those companies. TPG didn’t want Beringer to take a minority position with a bigger partner and we wanted at least 51% of the shares to consolidate our position. We went through the mechanics, considering cash and stock and stock only, but in the end it came down to a haggle over a couple of bucks. We settled on $US55.75. It’s on the public record that another company was offering $US55. The pressure was on, but the Foster’s balance sheet was able to come up with cash against other competitors who were offering stock. We’ve been surprised at the level of warmth towards us from Beringer. Sure, many there have done well in employee share schemes, but that’s what they’re for. They also realised that if they were going to be taken over, it would be best if it was by someone with a good balance sheet and that their business would remain a significant part of the overall scheme. How comfortable are you with the price paid for Beringer? Beringer has great assets; I haven’t seen better anywhere. You can’t build the sort of facilities like the Rhine House (the Germanic mansion presently used as a cellar door outlet) again. Beringer has history, a culture and a strong brand and you’d take fifty years to create it from scratch. We took the view that the US public are still falling in love with premium wine and if we were to ride on the back of that and get hold of the jewel in the crown, we’d be happy to let the others fight over the rest. Back then Robert Mondavi’s share price was in the toilet, but now it’s trading at a higher price than we paid for Beringer, having risen by 25-30%. Our timing has been good. A third of Beringer’s vineyard has still to come on stream, around 2,900 acres out of 10,300. That’s a huge plus, and we took a punt on vintage conditions in 2000, which turns out to be the best since 1997. Beringer crushed 32,000 tonnes of its own fruit in 2000 against 17,000 the previous year, out of a total of 110,000 tonnes, so we’re certain to pick up extra profits. From the Mildara Blass perspective, what are the key elements of the purchase? One of the risks in this business is that you become so Australia-centric that global issues pass you buy. Foster’s was never going to get on the world stage as a premium beverage company with a beer acquisition, unless it went back to the John Elliot days of international beer production. Foster’s is a premium beer producer but a regional one. Our choices were to give money back to our shareholders or to go further down the route of becoming a premium beverage company. Will Beringer’s management be given a free hand to do what they always have done? We’re happy to let them do as they’ve been doing. We will get our exports through their distribution channels and we’ll get the best of the intellectual property aspects of both parties, especially with Beringer’s premium wines. Rather than having us telling them what to do, there will be a technical interchange of ideas. Are you expecting the Beringer brands to become as widely known around the world as some of the Mildara Blass lines? Yes, but we need to be realistic. With the US dollar so strong there will be niches and pockets in 5-star hotels and top restaurants. There hasn’t been an export focus at Beringer – for it hasn’t needed one – so we will have to breed more of an export culture there. Our target is to double Beringer’s exports, a figure that may not increase as a percentage of their sales. Is Mildara Blass still looking to make other acquisitions? My job is to make sure we deliver the numbers I said we would deliver. There is enough low hanging fruit between the two companies and effort needed to arrange input cost reductions and combining sales forces to keep us busy. We don’t want to get the reputation as a deal maker; we’re a builder. Let’s take six to twelve months to settle down and get comfortable at the staff, customer and distributor level and then we’ll have a good look around. There are still gaps in our portfolio: I’d love to have a stronger position in NZ and to own a WA brand. Would you consider expanding by buying family-run companies? When you’re looking at a family owned company sometimes you don’t know what you’re buying. What’s the impact when a high-profile owner is taken away from a brand, like a Robert Mondavi for instance? Look what happened when Brian McGuigan moved out of Wyndham Estate – that’s why we’re so keen on keeping Wolf Blass involved with our business, especially with overseas customers. Beringer has been run as corporate business since 1982 when Nestle bought them, so they’ve had several years to get their systems and procedures in place. There was no family icon leaving and damaging brands, but instead there was more of a corporate culture in the company.
