Following the sale of an 18.8% stake in Southcorp to Fosters by the founders of Rosemount Estate, the Oatley family, Australia’s largest brewer has become the major shareholder in the country’s most important wine maker. Through its ownership of Beringer Blass, Fosters is one of the largest wine producers in the world. Southcorp, while it has been troubled in recent years following its takeover of Rosemount Estate, remains one of Australia’s largest wine producers. From the Southcorp perspective, its management team under John Ballard is approaching the end of a refocusing and cost-cutting process that has nearly finished resurrected the company. Its share price has improved over the last twelve months, but it remains below the inherent value within the business, which is likely to re-emerge over the next 12-18 months. From that perspective, it is a perfect time for a predator to issue a challenge, since the share price is only likely to be heading one way. Within Australia, there exists a strong desire to see Southcorp remain in local hands. On one hand, Fosters and the Oatley family are saying that this can best be achieved through its ownership by Fosters, while others might argue that this very process is likely to precipitate a foreign bid either for Southcorp, or even for Fosters itself if its bid for Southcorp is successful. With other large Australian-based wine producers in foreign hands (Orlando Wyndham is owned by the French company Pernod Ricard while The Hardy Wine Company is owned by the American group of Constellation Brands), Southcorp represents the last chance for some of the world’s largest beverage operations to walk into the big end of town of Australian wine. UK-based Allied Domecq, still smarting after coming second in the battle for Barossa-based Peter Lehmann Wines still has no presence in Australia, and neither does its major competitor, Diageo. Before I am convinced that there is a benefit to Australian wine in Fosters’ takeover attempt, I need to believe that they can find a way to successfully integrate a significantly different and more conservative corporate structure and a substantially different wine culture into its own lean and dynamic operations. Furthermore, I wonder how a single producer could ever hope to fully maximise the potential of such successful brands as Penfolds, Lindemans, Rosemount Estate, Wolf Blass and Wynns within the same folio. Much of what Southcorp achieves with significant, but comparatively minor (in terms of international sales) brands like Leo Buring, Seppelt, Coldstream Hills and Devil’s Lair might be considerably less successful within a Fosters-styled business, and I would be very concerned at their future and longevity in the event of a takeover. In a pure, unrealistic and ideal world, I would have liked John Ballard to receive the additional year or two to complete the extremely impressive rebuilding of Southcorp. The hard light of commercial reality tends to suggest that he might not. Personally, I am very keen to see that Southcorp is not broken down, but remains intact and within Australian hands. I am now fearful that fate might have another future in store for it.
