Winemaker Australian Vintage Ltd (ASX:AVG) is still in talks with US-based Constellation Brands Inc about the possibility of combining part of their operations in Australia and the United Kingdom.
Australian Vintage chairman Ian Ferrier told the company’s annual general meeting on Wednesday it was too early to say if the talks would lead to a transaction.
“I can’t be definitive, but our discussions at this stage are focussed on a deal where Australian Vintage would purchase part of Constellation’s business with Australian Vintage shares and existing Australian Vintage shareholders would hold the controlling interest in the combined business,” he said.
“We do see significant benefits, particularly given the structural imbalance in the industry in Australia, of reduced costs and other synergies from the combined operation.”
Australian Vintage announced earlier this month that it was in talks with Constellation.
Mr Ferrier said deals such as the one under consideration with Constellation were essential if the Australian wine sector were to address the continuing oversupply of wine.
He said the 2009 vintage had again outstripped demand, this time by about 30 per cent, which was “a recipe for disaster”.
Australia was producing 20 to 40 million cases more than it was selling, when the surplus already exceeded 100 million cases.
“At the current rates of production, surplus will double in two years,” Mr Ferrier said.
He said Australia’s wine exports had fallen in volume and value since the peak in 2007.
Over the same period, domestic sales of Australian wine had fallen, and sales of imported wine had risen, which had affected the value of local vineyards and processing facilities.
Mr Ferrier said the company was confident of meeting its profit forecast for the 2009/10 financial year and was targeting 100 per cent growth in net profit before significant items, assuming that the Australian dollar did not rise any higher.
“Trading in the first four months is in line with our expectations,” he said.
Australian Vintage, formerly McGuigan Simeon Wines, posted a $A123.6 million (US$113.58 million) annual loss for 2008/09 after a tough year for Australian wine growers, saying the industry’s golden age had gone.
The annual loss came after a $127 million impairment charge following changes made after the company decided the traditional wine company model was not sustainable.
Australian Vintage made a net profit before significant items in 2008/09 of $4.3 million.
Australian Vintage shares were 0.5 cents lower at 25.5 cents on Wednesday.