You have to feel for Southcorp right now. After initiating a significant number of internal changes to redress some of the major difficulties it brought upon itself, it is now being hammered by the rate at which the Australian dollar is appreciating against other currencies, especially the American dollar. Estimates over the last six months have suggested that with every cent gained by the local currency against the greenback, the company’s EBIT and amortization falls by around A$650,000 -A$700,000. With a share price down around A$2.60, one has to wonder how soft a target the company has become, especially to European buyers who might not now be able to resist what has essentially become a cheap temptation. At least a move from the US direction is now less likely than for some time. Domestically, there are several reasons right now why I would surprised to see Foster’s make a move on Southcorp. Each company is going about a constant rationalisation of its production assets, and each has been heading in much the same direction. There is now a very significant duplication of key assets in major wine regions. Despite its documented difficulties in increasing its US market share, Beringer Blass believes that in the Wolf Blass brand it has a vehicle that might actually outperform the key Southcorp brands of Lindemans, Rosemount and Penfolds. Its recent fine-tuning of the Wolf Blass brand structure has been intelligently conceived, and I have written before about my belief that the company’s wines are steadily improving in quality at all levels. Simply, a combined Beringer Blass/Southcorp would be complex, would substantially compete against itself in terms of price, quality and region, and would take a long time to rationalise. I think the view in Foster’s is that there is not enough upside to justify taking on this particular problem. Time will tell. Ultimately, however, I believe that Australian wine is better off with an independent and successful Southcorp. Naturally, it needs to be able to marry its inherited role as custodian of a number of classic Australian styles with a profitable bottom line. But from my perspective as an independent critic, I believe I am yet to meet the perfect new owner, should it come to that. Those at the helm of Southcorp today must be tired of fighting fires on so many fronts. I sincerely hope that sooner or later some luck falls their way. The company deserves it.
