General | Feb 05 2006
Having tried the hostile route in December without success, leading global wine company, US-based Constellation Brands, has now paid up to achieve a friendly takeover of number eight wine company, Canadian-based Vincor, for US$1.3 billion.
GSJB Were notes Vincor provides Constellation with the two strategic assets of a Canadian distribution platform (Vincor controls around 20% by volume) and the acquisition of the South African brand “Kumala”, which is currently the UK’s favourite brand and has just been launched in the US.
So how does this affect Foster’s (FGL)? Weres suggests Foster’s move to secure Southcorp and become a leading global player is vindicated as global wine consolidation continues. Although Constellation will become 75% bigger in wine than Foster’s, Weres notes the premium wine differential is only 34% given Foster’s superior average revenue per case.
The competition will become more fierce, as Foster’s holds a 9% share in the Canadian market which has been growing at double-digits. Kumala is achieving the same figures in the UK.
Weres calculates Constellation paid 13.3x EV/EBITDA for Vincor (10.0x post-synergies) while Foster’s coughed up 18.2x (10.5x) for Southcorp. With Foster’s now trading at 11.5x, should it be valued higher? Should we start talking target again? It’s not easy to equate, says Weres, as 60% of Foster’s revenue comes from beer.
McGuigan Simeon Wines (MGW) is also trading at 11.5x but no one least of all Weres, can see any takeover value for the sadly struggling relic.
Weres rates Foster’s Marketperform L/T Buy and the FN Arena indicator shows 0.2. McGuigan is rated Underperform L/T Sell by Weres and the indicator shows 0.0.
