Foster's Brewing Group (Foster's) today announced it had entered into a Merger Agreement to acquire Beringer Wine Estates (Beringer), a leading US premium wine producer based in California's Napa Valley.
The acquisition will be launched by way of a tender offer for Beringer shares at US$55.75 cash per share, to be followed by a merger at the same price per share. Following the merger, Beringer would be wholly owned by Foster's. The proposed offer price values Beringer equity at about A$2.0 billion. In addition, Foster's would assume net debt of about A$560 million.
Foster's President and Chief Executive Officer, Mr Ted Kunkel, said, "This is a defining event for Foster's. We searched the world for a suitable wine acquisition and Beringer was the absolute stand out.
"The combination of Mildara Blass and Beringer will create one of the world's largest and most profitable premium wine companies and will form a powerful new growth engine for Foster's.
"Acquiring Beringer provides Foster's with direct access to one of the fastest growing premium wine markets in the world, and reinforces Foster's standing as a truly global premium beverage company.
"The acquisition of Mildara Blass was the first step in our wine strategy and that has been outstandingly successful for Foster's. The addition of Beringer will increase our international reach and will help drive our unique global wine strategy to pursue growth via three key channels - wine trade, wine clubs and wine services," Mr Kunkel said.
Mildara Blass Managing Director, Mr Terry Davis said, "This combination of two great wine companies creates the world's first truly global premium wine company, and Mildara Blass and Beringer Wine Estates are pleased to be first movers in this regard. Beringer is a perfect business partner for Mildara Blass. They have great Californian wineries and vineyards, strong brands, a history of commitment to quality, outstanding growth and a strong management team."
Beringer is a leading producer of premium Californian varietal wines and owns several top-selling and award-winning premium wine brands including Beringer, Meridian, Chateau St. Jean, Chateau Souverain, Stags' Leap and St. Clement. Its flagship winery, Beringer Vineyards, is the only winery to have had both a red and a white wine named "Wine of the Year" by Wine Spectator magazine.
Mr Kunkel said Mildara Blass and Beringer were highly compatible companies. "Both are leaders in their premium wine markets, both have top quality brand portfolios, and both have outstanding management teams. Together they create a global premium wine leader," he said.
Beringer's major shareholder is Texas Pacific Group and Associates (TPG) which, together with a number of Beringer's directors and senior management, owns approximately 55% of Beringer's outstanding shares. Foster's has entered into a Tender, Voting and Option Agreement with TPG and this group of directors and senior management of Beringer, which includes undertakings by each of the parties to accept Foster's offer. The offer process is subject to customary US conditions, details of which are set out in the attachment.
Foster's intends to fund the acquisition with a A$500 million underwritten equity raising. The equity offering will be conducted via a 24 hour accelerated global bookbuild with a provision for a further A$200 million of over allotments. Foster's will raise $US400 million (approximately A$700 million) of guaranteed subordinated exchangeable bonds (Bonds) which will also be underwritten and will be offered to the market at the same time as the equity placement. The remainder of Foster's funding will be sourced from committed bank facilities.
An ASX trading halt will be in place throughout 29 August, 2000 while the offerings are undertaken. Foster's expects that trading will recommence on 30 August, 2000 after the results of the equity and Bond offerings have been announced.
Mr Kunkel said "Beringer is a first class company which has a strong track record due to the quality of its assets and management's expertise in brand building and marketing."
Beringer:
The Beringer senior management team, which includes Chairman and CEO, Walt Klenz, Chief Operating Officer, Jim Watkins, Chief Financial Officer, Peter Scott and Wine Master, Ed Sbragia, will continue with the company following the merger.
Beringer Wine Estates Chairman and Chief Executive Officer, Mr Walt Klenz said, "This represents a new and exciting chapter for Beringer Wine Estates, and we are proud to be at the forefront of the globalisation of the premium wine industry. This combination gives us a business partner with a similar philosophy, and will provide us with access to new markets and new business opportunities which assures Beringer's place as a key player in the world's premium wine industry going forward."
Mr Kunkel said acquiring Beringer will improve Foster's business mix. "A better balance between beer and wine, continents and currencies will be achieved. We are using our high return cash businesses to expand into another business with outstanding growth prospects."
"Gaining direct on-the-ground access to the US wine market, with a well established domestic brand portfolio, is a very attractive feature of Beringer. The US has one of the fastest growing per capita premium wine consumption rates in the world yet is underdeveloped by international standards - less than half that of Australia and one eighth of the French rate," he said.
In addition, Beringer has in recent years invested heavily for the future. In the last 3 years Beringer has invested US$54 million in 2,800 acres of new plantings of premium varieties, and more than 30% of the company's vineyards are yet to become fully yielding.
"The significant investment by Beringer in these new plantings has laid strong foundations for Beringer's future," said Mr Kunkel. "The planted vineyards represent sufficient supply to satisfy continued strong sales growth for a number of years."
"The acquisition also provides a platform for further growth through the expected consolidation of the fragmented US premium wine market. The Australian market has already been through a process of rationalisation and Mildara Blass' expertise in capitalising on this opportunity can be applied to the North American market."
Potential also exists for significant global cross-selling opportunities between Beringer and Mildara Blass:
The offer to purchase Beringer shares will be open for at least 20 business days after the commencement of the offer period, which is expected to begin within one week. Following the tender offer, Foster's will complete the acquisition via either a short-form merger or a long-form merger, depending on the level of acceptances to the offer.
Both alternatives are procedural, although a short-form merger will take about one week, while a long-form merger could take up to four months as it requires a shareholder meeting and simple majority vote. Foster's will be able to vote the Beringer shares it purchases in the tender offer at that meeting.
Foster's will fund the acquisition through a combination of equity, bonds and bank debt.
The equity raising of up to A$700 million will be raised by way of a placement via a global bookbuild to institutional investors. UBS Warburg has underwritten A$500 million of the equity, with provision for up to A$200 million of over allotments. The bookbuild is expected to be completed within 24 hours of this announcement. The exact number of shares to be issued will be advised on completion of the bookbuild. The equity will be ordinary shares and will carry an entitlement to a dividend from the date of the allotment.
UBS Warburg has also agreed to underwrite the issuance of US$400 million (approximately A$700 million) of Bonds by a US subsidiary of Foster's. The Bonds will be offered in bearer form in Europe and elsewhere outside the United States.
Conversion of the Bonds would represent an equity raising at a 25% premium to the equity placement price.
Terms of the bonds include:
| Guarantor: | Foster's |
| Status: | subordinated, unsecured obligations of the issuer and Foster#s |
| Issue price: | 100% |
| Coupon: | 4.25% - 4.75% pa with interest payable semi-annually |
| Maturity: | 2003 |
| Negative pledges: | customary negative pledges |
| Events of defaults: | customary events of default |
| Exchange: | exchangeable into ordinary Foster's shares at any time |
| Exchange price: | 25% above the placement price under the equity bookbuild |
The balance of the funding will be secured from committed bank facilities.
Foster's estimates that the acquisition, under the proposed funding structure, will be immediately cash EPS[1] accretive. Foster's gearing (net debt/equity) is expected to increase from 56% as at 30 June, 2000 to approximately 99% this financial year. Interest coverage (EBIT/net interest) is expected to fall from 9.6 times to 4.3 times over the same period.
Mr Kunkel said the funding mix had been designed to ensure the company retained its investment grade credit rating and achieved the lowest cost of capital.
Further information, including a summary of the agreement with Beringer and unaudited consolidated pro forma financial statements, are attached.
Note: This media release contains forward-looking statements based on Foster's and Beringer's current expectations, assumptions, estimates and projections about their companies and their industry. These forward-looking statements involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those more fully described under the caption 'Risk Factors' in Item 1 to Beringer's Annual Report on Form 10-K for the fiscal year ended 30 June 2000. See 'Where You Can Obtain Further Information' in the attachment to this release.
UBS Warburg LLC, a subsidiary of UBS AG, is acting as Foster's financial adviser in relation to the transaction and is also providing various funding services to Foster's as outlined in this release. Jones, Day, Reavis and Pogue is acting as Foster's US counsel and Corrs Chambers Westgarth is acting as Foster's Australian counsel.
This announcement has been prepared for publication in Australia and may not be released in the United States. This announcement does not constitute an offer of securities for sale in Australia, the United States or any other jurisdiction. Any securities described in this announcement may not be offered or sold in the United States absent registration under the US Securities Act or an exemption from registration.
This announcement is not intended to be published or released in the United States. If you are a resident of the United States who has received this material inadvertently, please be advised as follows:
Foster's intends to file an Offer to Purchase and a Letter of Transmittal with the U.S. Securities and Exchange Commission relating to Foster's offer to purchase all outstanding shares of Class A common stock and Class B common stock of Beringer Wine Estates Holdings, Inc. All Beringer stockholders are strongly advised to read the Offer to Purchase and Letter of Transmittal when they are available because they will contain important information relating to the offer. These documents will be available at no charge on the SEC's website and may be obtained for free from MacKenzie Partners, Inc., by calling (800) 322-2885.
Beringer is a leading producer of premium Californian varietal table wines. These wines are marketed under the Beringer Vineyards, Meridian Vineyards, Chateau St. Jean, Chateau Souverain, Stags' Leap and St. Clement brand names. Beringer competes in each of the premium wine market categories, its largest entry in the popular premium category being the Beringer Vineyards White Zinfandel product. Beringer is also represented across each of its brands with high quality products in the ultra-premium category. Beringer also has a growing import portfolio of premium brands from Italy, France and Chile.
Beringer sells its wine principally in the United States to distributors for resale and has achieved a competitive position in chain stores, club stores, other retail stores and restaurants. Sales are concentrated in California, and to a lesser extent, the States of Florida, New Jersey, Texas and Illinois.
Publicly available information about Beringer can be obtained free of charge from the SEC's web site and from EDGAR Online's web site
Publicly available information about Foster's can be obtained free of charge from the company's web site http://www.fosters.com.au/.
Proceeds from the equity placement will be used to partially finance the acquisition of Beringer. If the acquisition is not completed, then Foster's would use the proceeds of the equity placement for working capital needs and general corporate purposes.
Foster's publishes its financial statements in Australian dollars. Fluctuations in the exchange rate between the Australian dollar and the US dollar affect the US dollar equivalent to the Australian dollar amount of Foster's earnings, assets and shareholders' equity. In addition, fluctuations in the exchange rate affect the US dollar equivalent of the Australian dollar price of Foster's shares on the Australian Stock Exchange and the US dollar equivalent of any cash dividends paid in Australian dollars.
The Australian dollar is convertible into the US dollar at freely floating rates. On 25 August 2000, the noon buying rate as certified for customs purposes by the Federal Reserve Bank of New York was A$1.00 per US$0.5737.
The pro forma unaudited consolidated income statement data provided below for financial year 30 June 2000 reflects the operations of Foster's as if the acquisition of Beringer had occurred on 1 July 1999, but excludes any amortisation charge on intangible assets acquired as such amounts cannot currently be reliably determined. The pro forma balance sheet includes intangible assets of $1,502.2 million, which is expected to be split between brand names (which are unlikely to require amortisation under Foster's current accounting policies) and goodwill (which would be amortised over 20 years). It is likely that the resulting amortisation of goodwill would be a material amount. As a result, the pro forma assumes that:
(i) the operating revenue earned by Beringer during financial year 2000 was included and translated at the average exchange rate for financial year 2000;
(ii) the net operating profit before interest and tax earned by Beringer during financial year 2000, excluding a one-time pre-tax gain of US$26.4 million (A$42.1 million) on sale of the Napa Ridge brand, was included and translated at the average exchange rate for financial year 2000;
(iii) the income tax attributable to Beringer's operating profit was calculated using a tax rate of 38.8%, being the adjusted tax rate applied by Beringer as disclosed in its Fourth Quarter and Fiscal 2000 Earnings news release. This was included as an acquisition adjustment;
(iv) the purchase consideration for Beringer was partially funded through a convertible bond issue and increased borrowings and the consequent increase in interest expense, net of related tax effects, was included as an acquisition adjustment; and
(v) the interest expense on borrowings was calculated using Foster's average cost of borrowings and was included as an acquisition adjustment.
The pro forma unaudited consolidated balance sheet data as at 30 June 2000 reflects the balance sheet of Foster's as if the acquisition of Beringer had occurred on 30 June 2000, but excludes acquisition accounting adjustments that would be required under generally accepted accounting principles in Australia. This is because the quantum of any such adjustments cannot currently be reliably determined. As a result, the pro forma assumes that:
(i) the balance sheet of Beringer as at 30 June 2000 was included and translated at the spot exchange rate as at 30 June 2000;
(ii) the purchase consideration for Beringer was funded through a combination of an equity placement, a convertible bond issue and increased debt; and
(iii) the difference between the net assets of Beringer as at 30 June 2000 and the purchase consideration was included as intangible assets.
These pro forma unaudited consolidated financial statements may not be indicative of the results that actually would have occurred if the transactions described above had been completed as of the dates indicated above or that may be attained in the future. The pro forma unaudited consolidated financial statements should be read in conjunction with Foster's unaudited Consolidated Financial Statements, Australian Stock Exchange announcements and other media releases.
As at 30 June 2000
| Historical (2) | Beringer (3) | Acquisition adjustment (A$ Millions) |
Pro forma | |
| Operating revenue | ||||
|---|---|---|---|---|
| Beer - Australian | 1,357.4 | 1,357.4 | ||
| Beer - International | 180.7 | 180.7 | ||
| Leisure and hospitality | 873.8 | 873.8 | ||
| Other Carlton business activities | 91.3 | 91.3 | ||
| Wine | 712.2 | 699.4 | 1,411.6 | |
| Property and investments | 142.6 | 142.6 | ||
| Corporate | 50.1 | 50.1 | ||
| 3,408.1 | 699.4 | - | 4,107.5 | |
| Operating profit/(loss) before interest and tax | ||||
| Beer - Australian | 384.6 | 384.6 | ||
| Beer - International | 6.6 | 6.6 | ||
| Leisure and hospitality | 110.2 | 110.2 | ||
| Other Carlton business activities | 9.9 | 9.9 | ||
| Wine (1) | 154.3 | 147.8 | 302.1 | |
| Property and investments | 29.4 | 29.4 | ||
| Corporate | (44.3) | (44.3) | ||
| Total Operating profit/(loss) before interest and tax (1) | 650.7 | 147.8 | - | 798.5 |
| Net interest expense | (65.0) | (141.8) | (206.8) | |
| Income tax attributable to operating profit | (154.5) | (2.4) | (156.9) | |
| Net profit before minority interests (1) | 431.2 | 147.8 | (144.2) | 434.8 |
| Minority interests | (3.4) | (3.4) | ||
| Net profit (1) | 427.8 | 147.8 | (144.2) | 431.4 |
| Interest coverage ratio (times) (4) | 10.0 | 3.9 | ||
| Net profit per ordinary share (fully diluted) - cents | 24.7 | 22.8 |
Note: the above pro forma income statement does not purport to be indicative of the results which the combined entity will achieve in the future. In particular, Foster's estimates that the acquisition will result in an increase in Cash Earnings per share (ie Earnings per Share pre-amortisation).
(1) Excludes any amortisation charge on intangible assets acquired as such amounts cannot currently be reliably determined. The pro forma balance sheet includes intangible assets of $1,502.2 million, which is expected to be split between brand names (which are unlikely to require amortisation under Foster's current accounting policies) and goodwill (which would be amortised over 20 years). It is likely that the resulting amortisation of goodwill would be a material amount.
(2) Historical information is sourced from Foster's Audited Consolidated Financial Statements for financial year ended 30 June 2000.
(3) Beringer information is sourced from its news release announcement dated 3 August 2000 titled "Fourth Quarter and Fiscal 2000 Earnings" as published on its web-site.
(4) The interest coverage ratio has been determined by dividing operating profit before interest and tax by net interest expense.
As at 30 June 2000
| Historical (2) | Beringer (3) | Acquisition adjustment (A$ Millions) |
Pro forma | |
| Current assets | 1,367.1 | 693.6 | 2,060.7 | |
| Non-current assets | ||||
| - Intangible assets | 1,332.6 | 1,502.2 | 2,834.8 | |
| - Other non-current assets | 2,401.7 | 574.2 | 2,975.9 | |
| Total assets | 5,101.4 | 1,267.8 | 1,502.2 | 7,871.4 |
|---|---|---|---|---|
| Current liabilities | 1,016.5 | 348.4 | 1,364.9 | |
| Non-current liabilities | 1,777.1 | 451.5 | 1,280.7 | 3,509.3 |
| Total liabilities | 2,793.6 | 799.9 | 1,280.7 | 4,874.2 |
| Total shareholders' equity * | 2,307.8 | 467.9 | 221.5 | 2,997.2 |
| Total liabilities and shareholders' equity | 5,101.4 | 1,267.8 | 1,502.2 | 7,871.4 |
| Non-current borrowings | 1,535.6 | 387.9 | 1,280.7 | 3,204.2 |
| Current borrowings | 223.1 | 243.5 | 466.6 | |
| Cash | (508.5) | - | (508.5) | |
| Total net borrowings | 1,250.2 | 631.4 | 1,280.7 | 3,162.3 |
* The increase in total shareholders' equity between the historical and pro forma balance sheets relates to the equity placement, net of issue costs.
Further information:
Media
Lisa Keenan
Tel: +613 9633 2233
Email: lisa.keenan@fostersgroup.com
Investor Relations
Domenic Panaccio
V-P Capital Markets
Tel: +613 9633 2641
Email: domenic.panaccio@fostersgroup.com
