When the google wine alert dropped into my inbox on Christmas Eve, I wasn’t expecting anything significant to happen. Then came news that Constellation, one of the world’s biggest beverage companies, has sold off its Australian and UK division.
There’s nothing quite like announcing an AU $290 million deal when everyone’s left the office for a week or two and have mince pies rather than pie charts on their mind. Of course, you can’t brush this one under the carpet but it has happened without too much fuss.
An Australian private equity fund, CHAMP, has bought the businesses and the deal is expected to be complete by the end of January. It includes the transfer of Constellation’s Australian, UK, and South African brands, wineries, facilities, vineyards, and the company’s 50% interest in Matthew Clark, the UK wholesaler. All CWAE employees will transfer with the business but there is uncertainty for those staff who will be unsure as to the future holds in 2011.
Constellation’s CEO Rob Sands said Australian wine no longer offered the profit margins it expected as part of its premiumisation strategy. “Constellation has implemented a strategy focused on driving profitable organic growth through premiumizing its world class brand portfolio and improving margins, return on invested capital and free cash flow,” he said. “The CWAE business sells quality wines from the important Australian appellation and has significant scale, but continues to be faced with challenging market conditions. Therefore, the business is no longer consistent with Constellation’s strategy.”
How did Constellation get into this sticky wicket? It paid US$1.1 billion for BRL Hardy in 2003. It was part of an acquisition trail, which included buying Zinfandel producer Ravenswood for close to $150m and Mondavi for more than $1bn. The debt soon piled up, the global economic crisis hit, Australian wine slumped and other wine producing countries got their act together. Not a recipe for success.
So, Hardy’s is off to pastures new at a fraction of the price paid in 2003 and Constellation has thrown plenty of extras in as part of the deal. They must have been feeling in the Christmas spirit.
