While virtually all the media coverage concerning the largest Australian wine merger in history entirely missed the point, at least OnWine readers got a sniff in the last issue that all was not entirely as it superficially appeared. With Rosemount’s Keith Lambert stepping into the shoes as chief executive of the combined Southcorp/Rosemount Wine Division, with he and Rosemount’s Sandy Oatley appointed to the board and Bob Oatley shortly to follow, and with Rosemount head winemaker Philip Shaw rearranging Southcorp’s wine production in South Australia (with the underlined exception of Penfolds) and Victoria, who is supposed to have ‘swallowed’ whom in this $1.5 billion deal? So much for media reports that ‘Southcorp’s management are rubbing their hands with glee after pulling off the Rosemount takeover’! If this were the case they must surely be easily pleased, or else as incompetent as other coverage in the press has suggested. The deal went like this. Southcorp paid Rosemount $881 million in cash and issued it with 94.3 million shares at $5.50 each, equivalent to 10% of the company. It has also retired Rosemount’s $90 million in debt and has cancelled its own planned $360 million on-market share buyback program. Over the next two years the Oatley clan can purchase further shares up to a ceiling of 19.9% of the company, 75% of whose future earnings will come from its wine division (versus 45% in 2000. The combined company would have a market capitalization of about $4 billion and revenue of more than $1.1 billion from sales of more than 10 million cases of premium branded wines. The enlarged Southcorp will have more than 7,500 hectares of vineyards and export to more than 80 countries. While Southcorp is certainly less vulnerable to takeover by the global giants of Diageo and Allied Domecq than it was previously, it’s still not out of the woods. There’s an expectation overseas that the company will still fall prey to a multinational. Its water heater business, which could be rapidly converted to cash to recoup a purchaser’s losses, isn’t going to make Southcorp any less palatable. It will be some time before the new wine business will produce the sort of returns that Rosemount has done on its own, a view shared by Keith Lambert, who says he has three years of hard work ahead.
