Chris Losh sees the current plight of Evans & Tate, which recently rebuffed a takeover bid by the smaller, US-listed Australian wine producer Yarraman Winery, as symptomatic of the problems facing the Australian wine industry.

The failure of one company to buy another wouldn't normally make a columnist's ears prick up. But Evans & Tate's decision not to allow itself to be bought by Yarraman had me laughing and shaking my head in wonderment all at the same time.

The story so far: Evans & Tate, big-name Aussie wine producer from Margaret River, gets cripplingly in debt - E&T owes some A$90m (US$73m) to ANZ Bank - and realises it has to raise big money or go to the wall.

Along comes Yarraman, a smaller company from the Hunter Valley with few, if any, export pretensions, which spies a chance to become a big player overnight. Yarraman offers E&T shareholders one share in the new company for every nine currently owned in E&T, raising this to one in every 6.75, and things look promising for a while.

But a look at Yarraman's books prior to the purchase led E&T to withdraw. E&T claimed that it didn't feel the prospective suitor was able to raise the money necessary to get the deal off the ground.

A few weeks later, E&T nailed a deal with its US distributor, selling 80% of its stake in Scott Street Portfolio for A$510,000, which is a bit like trying to patch a severed artery with a band-aid.

But let's get back to the Yarraman non-deal. At first, I thought the E&T board's torpedoing of the deal was rather like a shipwreck victim sending away a lifeboat for being the wrong colour. In fact, it is a bit more complicated than that. Yarraman has debts of its own. The NASDAQ-listed company currently owes around US$5m, though it is of course a much smaller operation than E&T. So since Yarraman itself is in debt, could it be likened to declining to board a lifeboat that itself has a leak?

The idea of companies in debt trying to mask unprofitability through acquisition is not new. "It would be worse if not for the acquisitions," said one industry insider gloomily. "But all they are doing is staving off the inevitable. They are buying their way out of debt. It's a house of cards."

This, of course, is what happens when you have shareholders to placate. It tends to lead to businesses straining to grow even when market conditions militate against it. E&T's whole business philosophy over the last few years has been predicated on selling big volumes at low margins, which at a time when everyone else is doing the same was always going to be a risky business.

Nor, given the drop in available fruit following this vintage, are things likely to improve any. If there isn't much low-cost raw material available, how do you fulfil a business philosophy based on lots of cheap fruit?

The true significance of the Evans & Tate scenario for me, however, is that it is so painfully axiomatic of the current malaise in the Australian wine industry as a whole.

Overproduction has led to an awful lot of low-return business strategies and minimal brand-building. Unprofitability is endemic, and big debts have been ignored in the hope that the market will turn around before they reach critical levels.

But financial reality catches up with everyone eventually. Unless its situation improves significantly E&T could eventually be constrained to accept a deal no more palatable than the Yarraman offer - and it won't be the only company over the next few years to find itself in that sort of situation.

There will, for sure, be some major consolidation in the Australian wine industry. But when debt buys debt, the $64,000 question is not who buys whom, but how many of the new companies will still be around in ten years' time.