New year brings a new dawn

A new year often means new beginnings, and that is certainly what is happening with several drinks companies. Over the Christmas period, a raft of deals have been announced that will have a significant impact on the sector.

The most significant is Constellation Brands’ decision to further cut debt by selling the majority of its Australian and UK wines businesses to a Sydney-based private equity group, Champ, for AU$230million (£151m).

Constellation will retain a 20% stake in both businesses, so in total they are valued at about AU$287m. The main brands being taken under Champ’s control include Hardy’s and Banrock Station, while in Britain the group will become the new owner of Stowells.

Wine has been problematic for Constellation. In the US sales grew by 5% in the most recent quarter compared with 2009’s figures. In Britain and Australia, however, they fell by 14% due to a combination of the surging Australian dollar, a continued glut Down Under and UK duty rises.

The move follows earlier sales of US bulk brands such as Almaden and Inglenook and the group will now focus on premium lines such as Robert Mondavi and Ravenswood in its home market. Even after the disposals, wine will remain its largest business sector, eclipsing both beer and spirits.

A series of sales and reorganisations has improved Constellation’s performance despite slowing sales in the aftermath of the credit crisis and global slowdown and as a result its credit rating has been upgraded.

The sale of the UK arm focuses attention on Matthew Clark, the UK drinks wholesaler, in which Constellation held a 50% stake. In 2007 Matthew Clark became a joint venture between Constellation – which had taken over the group several years earlier – and Punch Taverns, one of Britain’s biggest pubs groups.  

The aim was to leverage Matthew Clark’s position and turn it into the leading on-trade supplier, but the guaranteed market of Punch’s pub empire has shrunk severely and now Punch itself is seeking to improve its own strained financial position by negotiating to sell its stake in Matthew Clark to WaverleyTBS in a deal that could raise almost £60m. Waverley, the former Scottish & Newcastle wholesale wines arm, was itself sold to private backers by Heineken in 2008.  

Meanwhile, Constellation is not the only US group divesting itself of wine. Brown-Forman, the owner of Jack Daniel’s, is considering offloading its California wine assets, including Fetzer, as part of a strategic review. The review does not include the Sonoma-Cutrer brand or the company’s long-term agency relationship with Korbel California sparkling wines.

Sales of Brown-Forman’s eight wine brands have been sluggish in recent years. In the year to April 2010 turnover was US$310m, a 15% fall against a year earlier. Analysts speculate that the group could be looking to tidy its balance sheet in advance of the mooted scramble for Beam Global’s assets when that company is split from Fortune Brands later this year.

Finally, following approval from the New Zealand authorities, Pernod Ricard has completed the sale of Lindauer and several other wine brands including Gisborne and Hawke’s Bay to a consortium of buyers for just over £40m.

Finance on Friday, 07.01.2011