It had to happen. After months of inaction, the second round of consolidation in the Australian wine industry looks underway. David Robertson assesses the state of play among Australia's second tier winemakers and wonders whose next?

Australia's wine industry has erupted into a takeover frenzy again after a couple of quiet months of worrying about the sector's outlook for this year. Brian McGuigan and Simeon Wines have announced a A$460m merger that will create the fourth largest listed wine maker - but still only with 2% of the domestic market in Australia.

Allied Domecq has also taken a 5.4% stake in Peter Lehmann Wines (PLW) sparking rampant speculation of a full takeover bid and a host of other rumours are, unsurprisingly, doing the rounds.

Firstly, the Lehmann situation. PLW is believed to have approached Brian McGuigan last year as the mid-sized wine makers looked to consolidate in a market that increasingly looks like it will be split between the giants and the boutiques. But PLW was apparently rebuffed - even as Doug Lehmann was forcefully insisting his company would stay independent.

PLW still maintains that it wants to go it alone but with Allied Domecq now on the share register that may change. Allied has already bought New Zealand's Montana for NZ$1bn and has a 15% share in Banksia Wines - which it seems only to be holding to annoy 85% owner (and Montana rival) Lion Nathan.

Allied bought its share in PLW for $4.25 a share (the purchase pushed PWL's share price up 22%, or 85c, to $4.75 on the day of the announcement). Rumours seem to indicate that PLW, in which the Lehmann family own a prohibitive 18% share, would sell to Allied for $5.25 a share.

But, then again, Allied might only be taking this stake in PLW to frustrate other buyers - as it did with Banksia. Again Lion Nathan is tipped as a possible suitor for PLW but senior executives at the brewer insist the company has enough to do with Banksia and its other wine operation Petaluma.

Another hot rumour in Sydney is a possible bid for BRL Hardy, the darling stock of the wine sector thanks to its stellar share price rise in recent years. Lion would love to get its hands on BRL but the price is likely to be very rich. This would be less of a problem for an overseas buyer - particularly one spending a strong currency like Sterling. Diageo is thought to have approached BRL already this year, as has Allied Domecq. So far the Adelaide-wine maker has kept its head down and rumour is all the market has.

Finally the McGuigan and Simeon deal. This has caused a lot of interest in a market eager to see some of the weaker mid-sized winemakers merge to cut costs and improve export potential. But McGuigan may have missed an opportunity to become part of something much bigger as Canadian winemaker Vincor is believed to have recently taken a $145m stake. Vincor chief executive Donald Trigg is also reported to have visited Australia often in recent months with an eye to making acquisitions. But even without the Canadians the McGuigan-Simeon merger has been well received by wine analysts.

The merged company is still much smaller than its rivals Southcorp, BRL, Beringer-Blass and its 6.4% shareholder and major customer Orlando Wyndham. But a number of analysts consider it likely that the new company will attract other winemakers (like Peter Lehmann Wines?) into the fold over the next couple of years as competition and price pressures build, creating a new Southcorp.

Even if McGuigan-Simeon stays Australian owned there will be plenty of other winemakers eagerly looking for generous foreign benefactors, for example Mount Langi Ghiran Estate put itself up for sale this week; cost $25m.

There was a bit of good news for the smaller winemakers this week as Abbey Vale Estates, in the Margaret River, dodged insolvency. The company was put into voluntary administration at the end of last year but creditors will let it survive by agreeing to allow it to ditch grape contracts it couldn't afford.

But despite Abbey Vale's resurrection the trend is becoming increasingly clear as Australian winemakers get squeezed: big is beautiful.