Foster’s have today taken a huge step to expand their wine business after taking out Southcorp’s largest shareholder, the Oatley family, as foreign bidders circle.
There shouldn’t be any surprise that the first big grog deal of 2005 involves Southcorp, the nation’s premier wine group now recovering in its own 12 step program after being financially abused by the Oatley family which backed their Rosemount Wines into the company in an over-priced deal almost five years ago.
But this home grown recovery plan now looks like being terminated by the intervention of Foster’s and the decision by the Oatley family to abandon ship and retreat to their Whitsundays paradise at Hamilton Island.
That Foster’s is the suitor is something of a surprise, given previous statement from its management about needing time to sort out its under-performing Beringer Blass wine business. Check out the Foster’s statement here.
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The Southcorp share price spent most of December rising with such force that a query from the ASX brought the usual ‘don’t know’ from the company.
Well, now we know. So much for a fully informed market!
The shares were at $4.49 when, having risen around a dollar in a month, that ‘don’t know’ sent the shares back down to the $4.25 range they closed at on Wednesday.
But Thursday morning brought requests for trading halts from both companies and the statement from Foster’s that it had acquired the Oatley family’s stake of 18.8% at $4.17 a share, a discount to the recent market price. Check out how the Fairfax websites is covering this story today here.
The resignations of the Oatleys, Bob and Sandy, brings an end to the relationship with Southcorp that has cost the company’s shareholders around $1 billion in losses and write downs, and more in lost market value.
For the Oatleys it represents a retreat into the world of private companies (although owning Hamilton Island is sort of public). The entry price for the family into Southcorp was just under $6 a share, so they have taken a substantial loss, albeit after taking a much bigger profit from the original $1.5 billion sale to Southcorp.
The Oatley influence has waned in the past year. A new CEO in John Ballard and other senior executives have cleaned out executives and the poor strategies and tactics of Keith Lambert, the son-in-law of Bob Oatley, who decided to try and discount his way to larger sales and profits, especially in the premium red wine end of the market, which was the company’s most precious assets.
This handed pricing power to Coles Myer and Woolworths precisely at the same time as both big retailers started growing their liquor businesses. It was a godsend for them and their shareholders and plunged Southcorp into substantial losses and slumping sales.
A decisions go in corporate Australia, it was one of the silliest and most expensive seen, up there with BHP’s purchase of Magma Copper in the mid 1990s.
A decision to change distributors and rationalise sales channels in the UK and US was equally as disastrous, especially in the US where Southcorp’s sales fell sharply, allowing the Yellowtail brand of the Casella family in NSW to enter and grab leadership (and much of Southcorp’s sales) within two and a half years.
Such was the financial impact that Southcorp sacked Keith Lambert with $6 million payout, wrote down the value of the Rosemount Wines business acquired from the Oatley’s by $833 million (and there were other substantial write-downs) and went into survival mode.
That saw the new management cautiously halt the slide and then start rationalising the wine bottling. That stabilised the situation and Ballard and his team promised a slow improvement in earnings, but that did nothing to assuage shareholders at last year’s annual meeting as you can see here.
“Dame” ‘Margaret Jackson jumped from the board of publisher John Fairfax to join Southcorp last July. One can also wonder what influence the new deputy chairman has had on the company in the brief time she has been there. It may have ensured Qantas handed out upmarket Penfolds reds as Christmas presents last year, but what she has done for Southcorp overall is still not certain.
If Foster’s is successful, then will the “Dame’ be on the loose later this year to search for yet another well-connected board? Corporate Australia has never seen a board hopper quite like the “Dame” before.
Finally, why did the Oatleys sell? No explanation was offered today, but a good bet is that there is at least foreign one bid on the table with those perennial bridesmaids, Allied Domecq and Diageo of the UK featuring.
The Oatleys (especially Bob Oatley) rejected bids from Allied and other foreign buyers for Rosemount before selling to Southcorp, even though they were rumoured to have taken a lower price to keep it in Australian hands.
Bob Oatley is a nationalist and wants a strong Australian wine industry. I reckon that Foster’s was rounded up at a lower than expected price to get them interested in Southcorp. Fosters will have some selling to do after playing down acquisitions for so long, especially in wine.
It is spending the best part of $300 million trying to revitalise Beringer Blass and improve returns.
Acquiring Southcorp (and Foster’s has around a billion dollars or more in cash from asset sales, including Lensworth) would make it the biggest Australian wine group (as well as being No.1 in beer) and one of the largest in the world, with much greater market power, especially to take on Coles and Woolies and the big UK retailers.