Rumours of further M&A activity in the Australian wine industry, reported in just-drinks yesterday, have proved true today with the announcement that Simeon Wines Ltd, Australia's third largest grape processor, and Brian McGuigan Wines Ltd are to merger.

The two companies have agreed on an A$436m (US$225m) merger to create the country's fourth largest listed wine company. Each company will control 50% of the new winemaker, which is expected to boost earnings per share in 2002/2003.

The news follows a day of mounting speculation after a halt was placed on the companies' shares yesterday.

This latest round of consolidation in Australia creates a sizeable player, three times as big as the next mid-tier wine concern.

Simeon shareholders will receive 10 McGuigan Wines shares for every 16 Simeon Wines shares they hold, which values Simeon Wines at A$229m.

The deal has good strategic synergies, with McGuigan known for its brand building skills and Simeon recognised as a strong producer. And it has gone down well with analysts of both companies, with McGuigan paying a nil premium and Simeon shareholders getting good value from the deal.

Simeon shareholders have had a rough ride in recent times with two years of poorer than expected profits and a sliding share price.

"Very simply, today big is beautiful in the wine industry because the success of the Australian wine industry and its long term future rests on our ability to compete internationally," said managing director and owner of 22% of McGuigan Wines, Brian McGuigan.
Simeon produces wine on contract to Orlando Wyndham, Yalumba, US-based Gallo, and British supermarkets Tesco and Sainsbury.

McGuigan has already hinted that the merged group will be on the look out for more acquisitions particularly in South Australia's Clare Valley, Coonawarra and McLaren Vale regions, where it currently does not have operations.

The merger plan has the support of both board's and the owner of 13.3% of Simeon's share's, Orlando Wyndham, which is owned by Pernod Ricard.