Over the last four years it has been difficult to escape the view that sooner or later, someone was going to snap up BRL Hardy. The fall in its share price from $11.67 last February has only made it more vulnerable. The likely buyer, paying $10.50 per share (valuing the company at A$1.9 billion), is Constellation Brands, the second-largest wine producer in the US, which is actually a partner of BRL Hardy in the US. The purchase will create the world’s biggest wine business, to be called Constellation Wines, with annual sales of around A$3 billion, surpassing Gallo’s annual sales of roughly $2.7 billion. Before the purchase, Constellation’s market value was A$3.9 billion. There are no current plans to change the new company’s Australian operations. Stephen Millar, who has overseen the company’s growth from a market value of A$90 million ten years ago to its present A$1.9 billion, will become Constellation Wines’ CEO. He will continue to be based in Adelaide and will report to Robert Sands, Constellation Brands, Inc. President and Chief Operating Officer. The attractions of the merger are obvious. The US side gets full access to a wide range of quality brands with which it is already familiar. The Australian side is further able to exploit Constellations’ distribution strength in both the US and Europe. The early market response to news the companies were in talks was a 21% increase in the value of BRL Hardy shares to $9.30. The offer by Constellation was initially believed to be around $8.50 per share, but the final offer of $10.50 represents a 37% premium to the price before the discussions were announced. BRL shareholders will be able to choose whether they receive cash, shares, or a combination of the two. Constellation, which is planning to list its shares in Australia, expects to complete the deal by early April. Since June 2001 the two businesses have together operated Pacific Wine Partners, a business that markets wine like Hardy’s Stamp, Blackstone, Banrock Station and Nobilio in that country. Constellations Brands is the largest single-source supplier of alcoholic beverages in the US and wine accounts for about 41% of its $2.4 billion in annual sales. Its US wines include the low-priced brands of Arbor Mist, Simi, Estancia, Almaden and Vendange. The upmarket Franciscan brand is responsible for most of the company’s premiums, including the Quintessa (US$100 per bottle), Magnificat (a Bordeaux blend), Mount Veeder (powerful Bordeaux blend) and the Cuvee Sauvage Chardonnay. It also owns Ravenswood and Turners Road, which it has acquired over the past two years. Aside from wine, it also distributes Corona beer, Paul Masson brandy and Black Velvet whiskey throughout the US. Through its subsidiary Matthew Clark, the company is also a major producer and wholesaler in Britain.
