Kerry Packer was famous for many things, but his most famous quote was probably saying that you only have one Alan Bond come along in your lifetime.
What he was referring to was his sale of Channel 9 to Alan Bond at a premium price, which was followed, several years later, by Alan Bond selling Channel 9 back to Packer at a deep discount.
[Footnote – whilst Alan Bond was a very profitable moment in Packer’s life, there were similar but not as lucrative moments with his investments in eCorp and Crown Casino.]
The announcement several days ago that Treasury Wine Estate was selling the Rosemount wine brand back to its previous owner, the Oatley family, reminded me of Kerry Packer and his dealings with Alan Bond.
I did mention this to one of the corporate affairs people after the Treasury Wine Estate AGM a couple of days ago, who happened to be hob-nobbing with shareholders. She said that I was not the first people to make such comparisons since the Rosemount announcement.
So… let’s rewind about 25 years to when Southcorp still existed. Southcorp was at that time mostly a wine making company based in South Australia, whose main asset was Penfolds.
Rosemount was, at that time, a mostly cheap and cheerful wine company which was the second best selling wine brand in Australia.
Obviously they were doing something right, something which Southcorp’s Board of Directors wanted to emulate.
So Southcorp’s Board offered a friendly takeover of Rosemount which turned out to be an intentional reverse takeover, where the Oatley family became major shareholders of Southcorp and the CEO of Rosemount (a son in law of the family) became CEO of Southcorp.
Some of the decisions made by the new CEO destroyed a lot of shareholder value very quickly and caused the rise of the Casella family’s Yellowtail brand.
The old Southcorp distribution network in the USA was surplus to requirements, given that Rosemount’s network was being kept. Simultaneously, many NSW contract grape growers for the merged entity were also terminated.
This left a network of American distributors looking for Australian wine product to sell, and many Australian grape growers looking for someone to buy their grapes.
The Casella family stepped in, taking over the distribution network and filling that vacuum with a new cheap wine product made from the grapes that Southcorp were not buying: Yellowtail.
Yellowtail was not the first Australian wine brand to feature an aboriginal painting of a kangaroo on the label – I have seen others before this – but it was the first to become so phenomenally successful.
Current sales for Yellowtail globally are over $500 million – about a fifth of what Treasury Wine makes. Not bad for a business which got its kickstart from an ill conceived merger between two very successful wine companies.
In 2005, the Oatley family sold their Southcorp shares to Fosters Group, which precipitated Fosters taking over Southcorp.
Fosters then, circa 2010, spun off all its wine assets into Treasury Wine Estate, before itself falling to a foreign takeover in late 2011.
In the intervening time since the Rosemount merger in 2001 and now, the Rosemount brand has been reduced from the $1.5 billion Southcorp paid for it to a few footnotes in the Treasury Wine Estate annual reports.
The price of the transaction between Treasury and the Oatley family this week has not been publicly disclosed, but I strongly suspect that it is far far far less than the $1.5 billion Rosemount received in cash and shares in 2001. The Australian Financial Review used the term ‘a tiny fraction’ of the original price.
I’m curious to see what happens next, as to whether the Oatley family is able to rebuild the Rosemount brand back to its former glory days, and more importantly, whether Treasury recovers from where it has been in the past two years.
But it is a text book long term example of the sort of questionable merger and acquisition decision making which destroys shareholder value, or transfers it to more nimble competitors.
