By Andrew Starke

Major players within the Australian wine industry need to consider joint ventures or other mutually beneficial transactions with competitors if the crippling supply / demand imbalance is to be addressed.

This is the view of Australian Vintage Limited Chairman, Ian Ferrier, who told the company’s annual general meeting in Sydney this week that Australian Vintage had outperformed the industry in the 2009 year with good sales growth in a falling market for Australian wine.

He said the wine industry faced major structural imbalance with Australia producing 20-40 million cases of wine that is excess of demand, on top of an existing surplus stockpile that has built up over previous vintages.

“We moved earlier than some to cope with the challenges and over the past two years have transformed our asset and cost base,” he said. “Our 2009 sales were up 9 percent, bucking the trend of falling demand for Australian wines generally.”

Ferrier said merger discussions with global wine giant Constellation were ongoing.

“Discussions with Constellation regarding a possible combining of part of their Australian and UK operations with AVL continue,” he said. “It is too early to say whether discussions will lead to a transaction as there are a number of material issues that remain outstanding.

“But from the discussions to date and given crippling supply demand imbalance, transactions like this are what is needed for the industry to return to sustainable production and returns.”

While Ferrier would not be drawn on the particulars of any merger or joint venture with Constellation, it is understood that discussions are at this stage focussed on a deal where Australian Vintage would purchase part of Constellation’s business with Australian Vintage shares and existing AVL shareholders would hold the controlling interest in the combined business.

“There is no guarantee that discussions will result in a deal and the Board will only pursue it if we can see long term benefits for AVL,” he said.

“We will update shareholders as discussions progress, or if they are terminated.”

Australian Vintage’s share price initially rallied slightly on the news but remained at 26c per share at midday today (Nov 27), unchanged from seven days ago.

The Shout Team

The leading online news service for Australia's beer, wine, spirits and hospitality industries.

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