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The City: Vincor blimey!

Published:  18 January, 2007

With the global wine and spirits business consolidating further, Robert Sands, the chairman and CEO of Constellation Brands, is determined not to be left on the sidelines, says Ron Emler.

Having failed to put together a viable consortium bid for Allied Domecq, he has targeted another of the world's biggest wine groups by revenue, Vincor of Canada. No formal bid has yet been made, but Constellation has made an unsolicited approach at a price of about C$1.4bn (675m), a premium of about 40% over the previous night's share price. The price would include Vincor's debts of about C$305m.

Sands said recently that wine would be the fastest-growing category' in the drinks market, and he is moving swiftly to reinforce Constellation's position in the global market. Having taken over BRL Hardy three years ago, last year he pounced on Robert Mondavi for $1.3bn. He then said he could find up to $2bn for further purchases and would have raised more to snatch Allied from Pernod-Ricard.

Vincor has started a war of words with Constellation, claiming that the predator had indicated it would pay a higher price and that C$31 per share is opportunistic, inadequate' and grossly undervalu[ing]' Vincor's growth prospects. It reckons that acquiring Vincor could potentially generate synergies that would double Constellation's earnings before interest, taxes, depreciation and amortisation.

Vincor's shares shot up by more than 50% on the news, and the company effectively put itself up for grabs by seeking a white knight' bidder who would rescue it from Constellation's grasp. It reckons there are several potential groups that are interested and that the battle of the number-crunchers has now begun.

For its part, Constellation has indicated that if Vincor provides extra financial information, it might increase the sum it is willing to pay. Sands claims that Vincor faces difficult operating conditions in the US, UK and Australia, where it lacks scale'.

Constellation, whose sales are four times those of Vincor, has launched its assault at a time when Vincor is vulnerable following a takeover spree in the past few years. The benefits of these deals have yet to flow through, the company claims, but in August it announced disappointing annual results and the shares plunged to below C$30, having stood at nearly C$37 just after Christmas.

The Canadian group's board now has about two months in which to fight off Constellation or secure a higher bid, and analysts are advising shareholders to sit tight until a clear picture emerges.