By James Wells
The 25,000 members of The Wine Society will vote on a sale of 75 per cent of the business this week to a consortium led by the Fogarty Wine Group and supported by McWilliam's Wines.
Australia's oldest wine co-operative, which turns 70 this year, owed $4.2 million to suppliers and recorded a loss of over $1 million in the ten months to 30 April 2016. Since 2013, its valuable membership database declined from 36,000 to 25,000.
To retire its debt and obtain ongoing access to a $3 million banking facility, the co-operative is proposing a restructure which will see 75 per cent of the business sold to Australian Wine Finance $75,000, a subsidiary of the Fogarty Wine Group – owned by wine businessman Peter Fogarty who is known for Lake's Folly in the Hunter Valley as well as Deep Woods Estate, Smithbrook Wines and Millbrook in Western Australia. McWilliam's Wine Group has been identified as a “minority shareholder” in Australian Wine Finance.
An additional $673,000 of office and computer equipment will also be sold.
For the restructure to pass, 75 per cent of members must support the resolution via an online or mailed voting form by Friday 29 July.
"The Wine Society has faced a challenging time in recent years,” members were told through the company’s website.
“The Wine Society – like every other small to medium sized wine retailer in Australia – has been impacted by massively increased competition, led in large part by the supermarket retailers and specialist online operators,” members were told through the company’s website.
“In response to this, the Board and management have been quite candid with members about the financial pressures under which the business has been operating. As a member, you may have noticed a decline in our product range in recent times. These member-affecting issues are a direct result of credit constraints and restricted cash flow. The financial alternatives faced by the Board to continue the Co-operative on a standalone basis in future are not attractive given the significant structural changes to our industry segment.
“The current proposal seeks to redress this situation and short circuit our current constraints so that The Wine Society can be positioned for growth and provide our members with an extensive range of wine in addition to enhanced event and educational experiences.
“We are pleased to advise that after much consideration, a change to The Society's operating model has been recommended, which will introduce new funding arrangements, and significantly strengthen the overall organisation. As a result, a social resolution – unanimously endorsed by the Board of Directors – is now being put to members by way of a special postal ballot."
“The aim is to create a sustainable model focused on growth – delivering the best possible offerings for members, at very competitive pricing.
“The elimination of debt will restore trading terms with our suppliers as well as the necessary funds to improve our wine portfolio. This means you will see an expanded and more consistent range of wine.
The aim of the restructure:
- “The aim of the proposed restructure is to provide a more financially sustainable operating model for The Wine Society, which should enhance the Co-operative’s ability to provide a greater range of wines to its members,” according to documentation supplied to members,
- “The Board reminds members that this restructure does not represent a sale of The Wine Society’s business. The Wine Society continues to exist and trade as a Co-operative and members’ rights are protected.
- “By directly addressing The Wine Society’s prevailing financial challenges, the Board believes this proposal presents a genuine growth opportunity and the most secure environment for both the Co-operative and its membership into the future.
The restructure:
- The Wine Society Co-operative will sell computer and office equipment to its wholly-owned subsidiary, TWS Wholesale, and the staff of The Wine Society Co-operative will become employees of TWS.
- TWS will then take over the performance of various functions of The Wine Society Cooperative, including wine procurement, marketing, sales, accounting and information technology services, and provide those functions to The Wine Society Co-operative through an outsourced arrangement
- The Wine Society Co-operative will retain a 25 per cent equity stake in TWS
- Australian Wine Finance will take a 75 per cent stake
- Essentially, it’s a two-step transition of The Wine Society’s operating model. This involves the deployment of an existing Wine Society Group entity (TWS Wholesale) to handle day-to-day operational activities; and the introduction of an external investor to facilitate a much needed injection of funding (Australian Wine Finance). Under this model, The Wine Society Co-operative would retain an equity interest in the new operating and financing vehicle, TWS Wholesale.
The vote:
- The vote for the special resolution will be undertaken by eligible Active Members in the form of a special postal ballot which must be received by 9am on Friday 29 July or submitted online by 11.59am on Thursday 28 July
- A vote of three-quarters (75 per cent) or more of voting members in favour of the Proposal is required for the special resolution to be carried
- Should the special resolution fail to achieve the required special majority, then the special resolution will not pass and the Proposal will not be adopted or implemented as proposed.