|
The sale to Sydney-based private equity group Champ was announced barely a couple of days after the possibility was reported by our California correspondent Rishi Vohra CWS.
For what could be the best high ticket ‘sale’ of the decade, the sales price has been discounted by 85% of the original price. "It's a very attractive price for a buyer where there's confidence in the strategy," says Millar. But reflecting the tight financial conditions he adds, "In the short term, it's more important to run the business for cash flow than for profit, so it suits a buyer that's setting it up for the future."
It’s a pity that none of the Indian wineries would have been in a position to acquire the company although a winery like Sula or Indage (in the earlier climate) could have ventured into a lucrative deal. As Millar says, private equity generally has a five-year investment horizon and as such his PE group company Champ is a more natural owner of the former BRL Hardy assets in the current environment than Constellation.
This is one example of how a big corporation can suffer the vagaries of short term cyclical pressures on the cash flow and the need to show short term results to the shareholders. As the executive chairman of Champ, Bill Ferris reportedly admits his group has been in similar situations where investors were "heading for the exit door", adding "Sometimes that's the wrong door,” implying that Constellation is perhaps making a strategic mistake.
However he adds, ‘it is somewhere towards a cyclical low in this global wine sector and the timing therefore may be sensible’. The Constellation assets have effectively been on the market for about a year.
The transaction with Champ, which is expected to close next month, features virtually all of Constellation's brands in Australia, Britain and South Africa. It also includes the wineries and vineyards and the 50 per cent stake in Matthew Clark, the British wholesale joint venture. But the New Zealand winery operation is excluded.
In typical corporate jargon, the CEO and President of Constellation Rob Sands says that the company had been concentrating on profitable growth for the last couple of years with main focus on building premium brands and improving margins, return on investment and free cash flow. Hardys had continued to face challenging market conditions.
The news of the second biggie Brown Foreman, reported in the same issue of delWine is now awaited. Watch out for the news in these columns even though there will be no issue of delWine before January 4th , 2011 because of holidays. |