• Talks progressing well, says Aus Vintage chairman
  • "Material issues" still to resolve
  • Aus Vintage sees solid start to year

Australian Vintage is seeking a controlling stake of a potential tie-up with Constellation Brands in the UK and Australia, group chairman Ian Ferrier has said.

Talks between the two companies are "progressing well", Ferrier told Australian Vintage shareholders at the firm's Annual General Meeting today (25 November).

Constellation announced this month that it is considering merging part of its UK and Australian wine arms with Australian Vintage (AVL).

Commenting on the discussions, AVL chairman Ferrier said: "I can't be definitive but our discussions at this stage are focused on a deal where Australian Vintage would purchase part of Constellation's business with Australian Vintage shares and existing AVL shareholders would hold the controlling interest in the combined business."

There are "material issues" yet to be resolved between the two firms, Ferrier said. But he added: "Transactions like this are what is needed for the industry to return to sustainable production and returns."

Australia is producing between 20m and 40m cases more than it is selling annually and nearly a fifth (17%) of the country's vineyard area is not profitable, according to a report published by leading industry bodies this month.

Ferrier said today that Australian Vintage believes wine production in Australia is 30% higher than it needs to be.

"We anticipate volatility as competitors make decisions about assets, brands and stock," said Ferrier, but he added that Australian Vintage is confident that it has production under control.

Trading in the first four months of the firm's fiscal year has been "solid", he said, although export margins have been hit by the strong Australian dollar.

"We continue to target doubling our after tax profits (before significant items) in the 2010 financial year, assuming the Australian dollar does not strengthen further," he said.

Australian Vintage outperformed the market to report a 9% rise in net sales for its most recent full-year, although the group slipped into the red.