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Lion's headache from mixing wine with beer

Time:2016-11-14 20:02wine - Red wine life health Click:

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Lion CEO Stuart Irvine (right, with chairman Rod Eddington)  has declared last drinks on the wine division which has ...

Lion CEO Stuart Irvine (right, with chairman Rod Eddington)  has declared last drinks on the wine division which has ...

Lion CEO Stuart Irvine (right, with chairman Rod Eddington) has declared last drinks on the wine division which has been sold to Accolade Wines. David Mariuz

Lion's headache from mixing wine with beer

by Simon Evans

Beer company Lion has ended a bruising 15-year foray into Australian wine with the sale of a string of high-end brands including Petaluma, Croser, St Hallett and Stonier to Accolade Wines, which is preparing to list on the Australian Securities Exchange.

Lion, which is owned by Japan's Kirin Corporation, has sold the Fine Wine Partners to Accolade for a price believed to be close to $100 million in a transaction which was first revealed by The Australian Financial Review's Street Talk Column on November 10.

The sale bolsters Accolade's portfolio at the upper end of the market. It also ends a difficult time for Lion in the wine industry after it paid huge multiples to enter the wine business in 2001 in Australia. Lion shelled out a whopping $229 million  for the Petaluma operations alone in a takeover in 2001 which also included the Knappstein labels, and then made further acquisitions along the way including the Banksia Wines operations which brought St Hallett and Tatachilla into its stable.

Lion chief executive Stuart Irvine said on Monday that the size and the fixed cost base of the Australian wine business meant that it didn't stack up on a return on investment basis compared with other opportunities in beer and cider where Lion has a much bigger business.

"Lion has a range of competing opportunities for investment in its core categories of beer and cider and has been unable to prioritise the investment required to grow Fine Wine Partners to a size justifying its fixed cost base," Mr Irvine said.

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He said it had been "the right time to realise a fair price for the business".

Perfect fit

Accolade's deputy chief executive Michael East said on Monday the Fine Wine Partners was a perfect fit for Accolade. Mr East knows the business intimately, because he was a former managing director of Fine Wine Partners earlier in his career.

"An expanded premium offering responds to a shift in consumer preferences for quality wine, while allowing us to better meet the needs of our customers," Mr East said.

Accolade is 80 per cent owned by CHAMP Private Equity. It has a large commercial wine operation at the lower end of the market, and has made several acquisitions in the past five years at the premium end of the sector to rebalance its portfolio.

Those acquisitions have included Grant Burge Wines from the Barossa Valley in South Australia, Mud House in New Zealand, Vina Anakena in Chile and Geyser Peak in California.

The sale of Fine Wine Partners brings six fully-owned brands into Accolade's stable. They are Petaluma, Croser, St Hallett, Knappstein, Stonier and Tatachilla. Fine Wine Partners also distributes a range of other brands on behalf of other small wine companies including Pikes, Henschke, Phillip Shaw and Bollinger.

Both companies have agreed on a six-month transition arrangement to allow a smooth handover should any of those smaller operators seek a change in distribution arrangements.

Costly foray

The sale brings to an end a costly foray for the two big players in Australian beer who bought up wine companies in the past two decades. Foster's, which is now part of the global Anheuser Busch-Inbev conglomerate, was the most aggressive in expanding into wine but struggled to deliver decent returns with a wine and beer business under the same roof.

Foster's split off Treasury Wine Estates into a standalone wine company in 2011 and after some early wobbles it has been a strong performer as a solo operator since early 2014 when new chief executive Mike Clarke took over. 

Foster's, which was taken over by SABMiller in 2012, spent up big on wine assets in the United States in 2001 with the acquisition of Beringer but made big writedowns over the next decade.

It also scooped up Penfolds owner Southcorp in 2005 in a takeover, but struggled to manage such a big wine brand portfolio after deciding to sell beer, wine and spirits using the same sales people, a move which was later reversed after it caused chaos in the marketplace and sales plummeted.

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