Foster’s CEO Quits, Constellation Sheds Wines
Clearly, it has been a big news day in the world of wine. Two of the world’s largest wine companies, Foster’s Group and Constellation Brands, came out with breaking news in the past 24-hours. Let’s take a look.
Foster’s Group announced yesterday evening that the board has accepted the resignation of ceo, Trevor O’Hoy. The news is not entirely shocking since Foster’s has had a bad run lately and O’Hoy has endured a lot of criticism from analysts.
In addition to paying too much for recent wine acquisitions, Foster’s has also suffered from a difficult Australian wine industry (including gluts and droughts in the past several years), the slowing U.S. economy and the strong Aussie dollar.
As a result, the company said it will reduce the level of U.S. distributor inventories at year end by approximately 1.4 million cases compared to the prior period.
Earlier in 2008, company management apparently instituted a review of Foster’s global wine strategy and operations, although we’ve yet to hear their plan of action. The review includes analysis of Foster’s wine markets and will consider the “optimal structure and operations of our wine business into the future.”
QUICK BACKGROUND. O’Hoy was appointed ceo in March 2004, replacing Ted Kunkel, after successfully heading the company's Carlton & United Breweries beer division since November 2002. Before that, he was Foster's chief financial officer.
Before O’Hoy took over as ceo, Foster’s purchased Beringer Wine Estates for $2.6 billion, which most analysts believe was far too expensive. Despite problems in the U.S., O’Hoy led Foster’s in acquiring Southcorp in 2005 for $3.2 billion as part of a move to become the world’s largest premium wine company.
“We believe this will be not only a transformational acquisition for Foster's but also one for the global wine industry,” O'Hoy said at the time.
As they say, hindsight is always 20/20.
O’HOY’S FAREWELL. “It’s been a privilege to devote my working life to Foster’s and to lead a team of talented and passionate people through major change and significant challenge over the past four years,” Trevor said. “It’s now time to stand aside and allow the next generation of management to lead the business forward.”
Trevor has agreed to stay on to facilitate a transition until the appointment of his successor, says the company.
CHAIRMAN COMES CLEAN. In our opinion, Foster’s chairman David Crawford handled the news graciously. He acknowledged that the company overpaid for Southcorp and that “wine returns are not acceptable.” Here’s an excerpt of his statement released yesterday:
“Trading conditions have been tough and the continued strength of the Australian dollar has hit us hard.
The reality is we did not execute the Southcorp integration as well as we expected and operating conditions are now more challenging. We must also recognize and acknowledge that we paid too much to acquire wine assets.
While we acknowledge that our performance in wine has been disappointing, there have been some notable performance highlights. Our innovation agenda has accelerated and our future innovation pipeline is very healthy.
On behalf of the Board, I sincerely thank Trevor for his hard work and dedication throughout his 33 year career with the business.”
Crawford went on to say that the board will begin “a rigorous international search to identify a successor.”
O’Hoy did not attend the conference call today, but Crawford said he turned in his resignation during an emergency board meeting on Monday after an internal review revealed the extent of the deterioration in the US wine business.
“He takes responsibility as chief executive for where the company currently is, and believes that it is appropriate that he resigns, steps down and allow a new management team to come in,” Crawford said.
FUTURE OF FOSTER’S. So where will Foster’s go from here? Right now the company is refusing to say whether it will sell its wine business. Analyst Andy Kovacs of Macquarie Research believes the company would be an easier acquisition target if broken up. Otherwise, a takeover is unlikely, at least in the short-term.
“We continue to believe a takeover is unlikely in the short term. The wine business is clearly in poor shape, and full of uncertainty. Furthermore it is very difficult to find acquirers of large wine assets...wine therefore acts as a poison pill for anyone interested in the beer business.”
“Furthermore a new CEO (whoever that may be) is unlikely to be a quick fix - as we believe much of the problems in wine are due to the difficult industry rather than poor operational management.”
“Nevertheless, if broken up it would be an easier acquisition target...”
We’re sure that Foster’s will be the subject of intense speculation in the coming months.
In the conference call today, Crawford told listeners that the company would entertain various possibilities, but it was still too early to determine if the assets would be sold or kept.
BY THE WAY, we read a lot of coverage of the Foster’s story today, but our favorite article was in The Australian by Bryan Frith. If you are interested in reading it, click here.
Here’s an excerpt from the article:
“O'Hoy wasn't responsible for Beringer -- that was a mistake of his predecessor Ted Kunkel. But O'Hoy cannot escape responsibility for Southcorp -- he had been in charge for several months when that acquisition was made.”
CONSTELLATION SELLS LOWER VOLUME LABELS
Constellation confirmed today it has agreed to sell seven wine brands to newly-formed Ascentia Wine Estates (based in Sonoma, CA). The brands hail from Washington, California and Idaho, and include Geyser Peak, Buena Vista, Gary Farrell, Atlas Peak and XYZin, Columbia Winery, Covey Run and Ste. Chapelle. The deal does not include the Atlas Peak vineyards or winery.
Recall that Constellation acquired Geyser Peak, Buena Vista, Gary Farrell, Atlas Peak, and XYZin from Fortune in December 2007 for $885 million.
Collectively, these brands represented approximately one million cases of wine sold in calendar 2007. They are mostly in the ultra-premium category where cost of production is highest.
Ascentia will be lead by Jim DeBonis, former coo at Beam Wine Estates, and it backed by several investors, including W.J. Deutsch and San Francisco-based private equity firm GESD Capital Partners. Deutsch will serve as the sole marketer and distributor of the brands, while GESD will help finance the deal.
Jim DeBonis will serve as ceo of Ascentia, while Peter Ekman, the former ceo of Wine.com, will take the position of chief sales and marketing officer.
Under terms of the agreement, Constellation received $209 million in cash, and could receive up to an additional $25 million in payments if certain objectives are achieved by the buyer. In all, Constellation could make up to $234 million. The company said it will use the proceeds from the sale to reduce borrowings.
Constellation’s shares rose nearly 2% in the morning trade.
"Sale of these assets will aid in streamlining Constellation's U.S. wine portfolio by eliminating brand duplication and excess production capacity," said Rob Sands, Constellation Brands president and ceo. "We feel our customers and consumers are well served by our extensive California wine portfolio and by the Hogue Cellars brand produced at its Prosser, Wash., winery."
The transaction will provide cash to help Constellation pay off its massive debt. Once it pays off some more debt, could Constellation be in the market for another big acquisition? Perhaps Foster's? Of course, it’s only speculation on our part and too early to tell.
When asked about future acquisitions at Constellation’s Investor Day last week, ceo Rob Sands said the following:
“In wine there will be opportunities for acquisition for selected brands and acquisitions on a global basis...not real big acquisitions in the vein of Mondavi, Vincor or Hardy because there aren’t any companies like that left...perhaps one or two but none for sale...but we will probably selectively fill in that portfolio will smaller acquisitions...geographical or gap filling,” he said.
Perhaps Constellation will change its tune now that Foster’s wine biz is possibly on the market – or at least could be in the future. Only time will tell.
WHAT’S THE STRATEGY? Says analyst Tim Ramey of D.A. Davidson on the Constellation deal:
“The strategic rationale is not obvious. All of these brands are in desirable premium price points. Our sense from management is that they needed to focus resources on Clos du Bois and Wild Horse which made up 80% of the volume of the Fortune purchase, and that there was simply too much dilution of focus to address the growth opportunities in all of these brands. In any case, it seems to close the door on a continuing roll-up of every premium wine brand under 30,000 cases.”
Tim also remarked that “premiumization” of the portfolio continues to be a big focus for Constellation, despite the sale announced today.
WHAT DEUTSCH IS SAYING. As an investor in the new company, W.J. Deutsch & Sons will serve as the sole distributor and marketer of Ascentia’s wines. Ascentia’s assets will add 646 acres of prime California and Washington vineyards to Deutsch’s current holdings in Australia and France.
Says Bill Deutsch, founder and chairman of W.J. Deutsch & Sons:
“The Ascentia Wine Estates portfolio of renowned California, Washington State and Idaho properties is the ideal complement to our current range of award-winning producers.”
“The great success that we are experiencing with our signature estate from Sonoma, Kunde Estate Winery and Vineyards, encouraged us to look for additional North American producers. With the addition of these ultra-premium wine brands we are now able to provide our customers with a comprehensive portfolio of domestic and imported fine wine estates.”
Says ceo Peter Deutsch:
“Riesling is clearly becoming a white wine of choice for the consumer, and Deutsch will now represent 15 – 20% of the total US Riesling production through Columbia, Covey Run and Ste Chapelle. A “sideways” glance at consumer trends shows us that Pinot Noir is a close second to Riesling in the growth category and Buena Vista and Gary Farrell offer a delectable half-a-dozen 90+ rated Pinots to choose from.”
“And for the increasing number of “Cab-is-King” consumers who are on a continuing quest to find the ultimate California Cabernet experience, Deutsch now offers Cabernet Sauvignon’s from some of the most coveted vineyard sites in the country – including ten 90+ rated Cabs!”
JIM DEBONIS “THRILLED”. As the new ceo of Ascentia, DeBonis said: “These wines are consistently highly-rated and we are confident the brands will flourish in our highly focused portfolio. The size of the Ascentia portfolio, the superior quality of the wines, and our partnership with W.J. Deutsch & Sons, Ltd...allows for immediate strength in the marketplace.”
“We also believe this provides an excellent platform from which Ascentia Wine
Estates can launch future acquisitions,” he continued.
DIAGEO APPOINTS CMO OF NORTH AMERICA DIVISION
Diageo has appointed Jon Potter to the role of CMO of Diageo North America and Debra Kelly-Ennis to the role of president of Diageo Canada, effective September 1, 2008. Jon Potter is currently the president of global marketing vodka and rum and will replace Kelly-Ennis.
Kelly-Ennis is currently the CMO of Diageo North America and will be replacing John Kennedy, who will become managing director of Diageo Ireland.
WSD BRIEFS:
DISCUS APPOINTS DANIELLE EDDY AS THE NEW PUBLIC RELATIONS DIRECTOR. Danielle will be responsible for showcasing spirits trends, industry heritage and cocktail culture through media relations, special events, media tours and sponsorships.
DISCUS WAS RECOGNIZED BY THE U.S. DEPARTMENT OF AGRICULTURE for being selected as a Charter MyPyramid Corporate Challenge Partner at a formal event in Washington D.C. MyPyramid is a 3-pronged movement where government, industry and education are taking aim at encouraging moderate and responsible alcohol consumption among adults.
A WTO PANEL RULED AGAINST THE U.S. and determined that America has no case in its complaint that India has put excessive duties on imported wine and liquor.
Until tomorrow, Megan
“Don't part with your illusions. When they are gone you may still exist, but you have ceased to live.”
Mark Twain
--------- Sell Day Calendar ----------
Today's Sell Day: 7
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
Foster’s Group announced yesterday evening that the board has accepted the resignation of ceo, Trevor O’Hoy. The news is not entirely shocking since Foster’s has had a bad run lately and O’Hoy has endured a lot of criticism from analysts.
In addition to paying too much for recent wine acquisitions, Foster’s has also suffered from a difficult Australian wine industry (including gluts and droughts in the past several years), the slowing U.S. economy and the strong Aussie dollar.
As a result, the company said it will reduce the level of U.S. distributor inventories at year end by approximately 1.4 million cases compared to the prior period.
Earlier in 2008, company management apparently instituted a review of Foster’s global wine strategy and operations, although we’ve yet to hear their plan of action. The review includes analysis of Foster’s wine markets and will consider the “optimal structure and operations of our wine business into the future.”
QUICK BACKGROUND. O’Hoy was appointed ceo in March 2004, replacing Ted Kunkel, after successfully heading the company's Carlton & United Breweries beer division since November 2002. Before that, he was Foster's chief financial officer.
Before O’Hoy took over as ceo, Foster’s purchased Beringer Wine Estates for $2.6 billion, which most analysts believe was far too expensive. Despite problems in the U.S., O’Hoy led Foster’s in acquiring Southcorp in 2005 for $3.2 billion as part of a move to become the world’s largest premium wine company.
“We believe this will be not only a transformational acquisition for Foster's but also one for the global wine industry,” O'Hoy said at the time.
As they say, hindsight is always 20/20.
O’HOY’S FAREWELL. “It’s been a privilege to devote my working life to Foster’s and to lead a team of talented and passionate people through major change and significant challenge over the past four years,” Trevor said. “It’s now time to stand aside and allow the next generation of management to lead the business forward.”
Trevor has agreed to stay on to facilitate a transition until the appointment of his successor, says the company.
CHAIRMAN COMES CLEAN. In our opinion, Foster’s chairman David Crawford handled the news graciously. He acknowledged that the company overpaid for Southcorp and that “wine returns are not acceptable.” Here’s an excerpt of his statement released yesterday:
“Trading conditions have been tough and the continued strength of the Australian dollar has hit us hard.
The reality is we did not execute the Southcorp integration as well as we expected and operating conditions are now more challenging. We must also recognize and acknowledge that we paid too much to acquire wine assets.
While we acknowledge that our performance in wine has been disappointing, there have been some notable performance highlights. Our innovation agenda has accelerated and our future innovation pipeline is very healthy.
On behalf of the Board, I sincerely thank Trevor for his hard work and dedication throughout his 33 year career with the business.”
Crawford went on to say that the board will begin “a rigorous international search to identify a successor.”
O’Hoy did not attend the conference call today, but Crawford said he turned in his resignation during an emergency board meeting on Monday after an internal review revealed the extent of the deterioration in the US wine business.
“He takes responsibility as chief executive for where the company currently is, and believes that it is appropriate that he resigns, steps down and allow a new management team to come in,” Crawford said.
FUTURE OF FOSTER’S. So where will Foster’s go from here? Right now the company is refusing to say whether it will sell its wine business. Analyst Andy Kovacs of Macquarie Research believes the company would be an easier acquisition target if broken up. Otherwise, a takeover is unlikely, at least in the short-term.
“We continue to believe a takeover is unlikely in the short term. The wine business is clearly in poor shape, and full of uncertainty. Furthermore it is very difficult to find acquirers of large wine assets...wine therefore acts as a poison pill for anyone interested in the beer business.”
“Furthermore a new CEO (whoever that may be) is unlikely to be a quick fix - as we believe much of the problems in wine are due to the difficult industry rather than poor operational management.”
“Nevertheless, if broken up it would be an easier acquisition target...”
We’re sure that Foster’s will be the subject of intense speculation in the coming months.
In the conference call today, Crawford told listeners that the company would entertain various possibilities, but it was still too early to determine if the assets would be sold or kept.
BY THE WAY, we read a lot of coverage of the Foster’s story today, but our favorite article was in The Australian by Bryan Frith. If you are interested in reading it, click here.
Here’s an excerpt from the article:
“O'Hoy wasn't responsible for Beringer -- that was a mistake of his predecessor Ted Kunkel. But O'Hoy cannot escape responsibility for Southcorp -- he had been in charge for several months when that acquisition was made.”
CONSTELLATION SELLS LOWER VOLUME LABELS
Constellation confirmed today it has agreed to sell seven wine brands to newly-formed Ascentia Wine Estates (based in Sonoma, CA). The brands hail from Washington, California and Idaho, and include Geyser Peak, Buena Vista, Gary Farrell, Atlas Peak and XYZin, Columbia Winery, Covey Run and Ste. Chapelle. The deal does not include the Atlas Peak vineyards or winery.
Recall that Constellation acquired Geyser Peak, Buena Vista, Gary Farrell, Atlas Peak, and XYZin from Fortune in December 2007 for $885 million.
Collectively, these brands represented approximately one million cases of wine sold in calendar 2007. They are mostly in the ultra-premium category where cost of production is highest.
Ascentia will be lead by Jim DeBonis, former coo at Beam Wine Estates, and it backed by several investors, including W.J. Deutsch and San Francisco-based private equity firm GESD Capital Partners. Deutsch will serve as the sole marketer and distributor of the brands, while GESD will help finance the deal.
Jim DeBonis will serve as ceo of Ascentia, while Peter Ekman, the former ceo of Wine.com, will take the position of chief sales and marketing officer.
Under terms of the agreement, Constellation received $209 million in cash, and could receive up to an additional $25 million in payments if certain objectives are achieved by the buyer. In all, Constellation could make up to $234 million. The company said it will use the proceeds from the sale to reduce borrowings.
Constellation’s shares rose nearly 2% in the morning trade.
"Sale of these assets will aid in streamlining Constellation's U.S. wine portfolio by eliminating brand duplication and excess production capacity," said Rob Sands, Constellation Brands president and ceo. "We feel our customers and consumers are well served by our extensive California wine portfolio and by the Hogue Cellars brand produced at its Prosser, Wash., winery."
The transaction will provide cash to help Constellation pay off its massive debt. Once it pays off some more debt, could Constellation be in the market for another big acquisition? Perhaps Foster's? Of course, it’s only speculation on our part and too early to tell.
When asked about future acquisitions at Constellation’s Investor Day last week, ceo Rob Sands said the following:
“In wine there will be opportunities for acquisition for selected brands and acquisitions on a global basis...not real big acquisitions in the vein of Mondavi, Vincor or Hardy because there aren’t any companies like that left...perhaps one or two but none for sale...but we will probably selectively fill in that portfolio will smaller acquisitions...geographical or gap filling,” he said.
Perhaps Constellation will change its tune now that Foster’s wine biz is possibly on the market – or at least could be in the future. Only time will tell.
WHAT’S THE STRATEGY? Says analyst Tim Ramey of D.A. Davidson on the Constellation deal:
“The strategic rationale is not obvious. All of these brands are in desirable premium price points. Our sense from management is that they needed to focus resources on Clos du Bois and Wild Horse which made up 80% of the volume of the Fortune purchase, and that there was simply too much dilution of focus to address the growth opportunities in all of these brands. In any case, it seems to close the door on a continuing roll-up of every premium wine brand under 30,000 cases.”
Tim also remarked that “premiumization” of the portfolio continues to be a big focus for Constellation, despite the sale announced today.
WHAT DEUTSCH IS SAYING. As an investor in the new company, W.J. Deutsch & Sons will serve as the sole distributor and marketer of Ascentia’s wines. Ascentia’s assets will add 646 acres of prime California and Washington vineyards to Deutsch’s current holdings in Australia and France.
Says Bill Deutsch, founder and chairman of W.J. Deutsch & Sons:
“The Ascentia Wine Estates portfolio of renowned California, Washington State and Idaho properties is the ideal complement to our current range of award-winning producers.”
“The great success that we are experiencing with our signature estate from Sonoma, Kunde Estate Winery and Vineyards, encouraged us to look for additional North American producers. With the addition of these ultra-premium wine brands we are now able to provide our customers with a comprehensive portfolio of domestic and imported fine wine estates.”
Says ceo Peter Deutsch:
“Riesling is clearly becoming a white wine of choice for the consumer, and Deutsch will now represent 15 – 20% of the total US Riesling production through Columbia, Covey Run and Ste Chapelle. A “sideways” glance at consumer trends shows us that Pinot Noir is a close second to Riesling in the growth category and Buena Vista and Gary Farrell offer a delectable half-a-dozen 90+ rated Pinots to choose from.”
“And for the increasing number of “Cab-is-King” consumers who are on a continuing quest to find the ultimate California Cabernet experience, Deutsch now offers Cabernet Sauvignon’s from some of the most coveted vineyard sites in the country – including ten 90+ rated Cabs!”
JIM DEBONIS “THRILLED”. As the new ceo of Ascentia, DeBonis said: “These wines are consistently highly-rated and we are confident the brands will flourish in our highly focused portfolio. The size of the Ascentia portfolio, the superior quality of the wines, and our partnership with W.J. Deutsch & Sons, Ltd...allows for immediate strength in the marketplace.”
“We also believe this provides an excellent platform from which Ascentia Wine
Estates can launch future acquisitions,” he continued.
DIAGEO APPOINTS CMO OF NORTH AMERICA DIVISION
Diageo has appointed Jon Potter to the role of CMO of Diageo North America and Debra Kelly-Ennis to the role of president of Diageo Canada, effective September 1, 2008. Jon Potter is currently the president of global marketing vodka and rum and will replace Kelly-Ennis.
Kelly-Ennis is currently the CMO of Diageo North America and will be replacing John Kennedy, who will become managing director of Diageo Ireland.
WSD BRIEFS:
DISCUS APPOINTS DANIELLE EDDY AS THE NEW PUBLIC RELATIONS DIRECTOR. Danielle will be responsible for showcasing spirits trends, industry heritage and cocktail culture through media relations, special events, media tours and sponsorships.
DISCUS WAS RECOGNIZED BY THE U.S. DEPARTMENT OF AGRICULTURE for being selected as a Charter MyPyramid Corporate Challenge Partner at a formal event in Washington D.C. MyPyramid is a 3-pronged movement where government, industry and education are taking aim at encouraging moderate and responsible alcohol consumption among adults.
A WTO PANEL RULED AGAINST THE U.S. and determined that America has no case in its complaint that India has put excessive duties on imported wine and liquor.
Until tomorrow, Megan
“Don't part with your illusions. When they are gone you may still exist, but you have ceased to live.”
Mark Twain
--------- Sell Day Calendar ----------
Today's Sell Day: 7
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 2:10 PM
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