Allied tastes defeat in Aussie winemaker fight

Legend of the Barossa Valley toasts victory as Peter Lehmann Wines agrees takeover by private Swiss drinks group
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The Independent Online

Allied Domecq yesterday conceded defeat in its two-month battle to take control of the Australian winemaker Peter Lehmann Wines after encountering fierce opposition from the company's founder.

The UK-based group's withdrawal marked the end of a colourful episode, which begun with Mr Lehmann warning: "Australia-England test cricket will pale into insignificance with the battle that will emerge."

A Martian freshly arrived in South Australia's Barossa Valley might have wondered why a decidedly generous offer of $3.85 (£1.60) per share would provoke such vitriol on the part of 73-year-old Mr Lehmann, PLW's second largest shareholder.

Most earthlings, though, were not surprised. Mr Lehmann's loathing for large corporations is as legendary as his flavoursome red wines. Yesterday it appeared that his group would end up in the hands of Hess, a private Swiss drinks group. Allied, the world's second-largest spirits maker, said it would accept Hess's offer of $4 (£1.66) a share for its 14.5 per cent stake.

Mr Lehmann, who holds a 10 per cent blocking stake, stepped down as deputy chairman last year but wields enormous influence with the Barossa grape growers who own a substantial chunk of shares.

His vocal opposition to an Allied takeover left the British company fighting on two fronts. As Max Lienhard, chief executive of Hess, put it: "I'm not sure I would be interested in a company where the guy whose name is on the bottle is completely against you." That must have riled Allied's chief executive, Philip Bowman, who is Australian (the Ashes metaphor is thus not entirely apt).

Allied and Hess had been locked in a bidding war since the Swiss group, which owns wineries in South Africa, Argentina and California, proposed a $3.50 (£1.45) per share cash takeover in late August.

Allied, which had been accumulating chunks of PLW in pursuit of a foothold in the Australian wine market, responded three weeks later with an offer of $3.85 per share conditional on 51 per cent acceptance - rising to $4 if it acquired 90 per cent. Family-owned Hess promptly matched the $3.85, with no conditions attached; Allied raised its base offer to $4 per share.

In a move doubtless confusing to a Martian, the winemaker's independent directors recommended that PLW's 3,000 shareholders sell to Hess. Last Thursday Allied played its final card, declaring its bid free of conditions; 24 hours later, Hess offered an identical $4 per share.

The company behind Dunkin' Donuts, Malibu and Tia Maria will now have to look elsewhere for an Australian winemaker. But the stock market heaved a sigh of relief at news that the Bristol-based group would not, after all, be paying over the odds for PLW. Its share price rose modestly yesterday to 387p, up 16.5p from Friday's close.

Philip Bowman, the chief executive, said: "While we remain firm believers in the potential of PLW under the control of Allied Domecq, we have an obligation to generate value for our shareholders. Despite the significant cost and revenue synergies that we believe would accrue to PLW as part of the Allied Domecq group, we do not believe that it would be in the interests of our shareholders to increase our offer further." In the Barossa, Mr Lehmann, whose son, Doug, runs the company, was celebrating with his wife, Margaret. The couple held a barbecue and wine tasting on PLW's lawns, joined by growers who descended on them to toast the success.

Mr Lehmann said: "There's one good lesson from all this for public companies and shareholders: even if you are a public company, you can get shareholder and supplier unity if there is pride of ownership." The roots of his antipathy towards multinationals - although not all of them, Hess being regarded as a benevolent example - lie in the era when he was chief winemaker for Saltram Estates, the Barossa winery then owned by Dalgety.

In 1978, facing an oversupply of grapes, Dalgety ordered Mr Lehmann not to buy that year's harvest. He was horrified; it meant ruin for the Barossa families with whom he had grown up. He refused, and instead raised the funds to buy the grapes himself, subsequently leaving Saltram to set up his own label. It was a gamble but it paid off, with the company becoming one of the most successful in the Barossa.

Local growers have never forgotten his loyalty. One grower, Kris Boehm, said recently: "He takes every berry I grow. He did the right thing by me years ago, and I will stick with him now." The Dalgety experience left Mr Lehmann, a Lutheran pastor's son, convinced that large corporations lack the human touch and have little understanding of niche premium wine companies. He claimed Allied would destroy PLW's family values and cheapen the brand by over-producing. To little avail did Mr Bowman protest that he would allow the company to be run with a large degree of autonomy.

The bidding war has run parallel to a battle of egos waged by two feisty Australians. When Mr Lehmann was on a globetrotting promotional tour recently, Mr Bowman invited him to meet him in London. He retorted: "He'll have to come out to Heathrow if he wants to talk." For Allied, which has wine operations in Spain, Italy, California and New Zealand, Australia remains a gap in its portfolio.

David Spry, an investment analyst with Australian stockbroker FW Holst, said that Allied - which had been stalking PLW since early last year - was likely to look for another Australian company. In the case of PLW, he said, "the premiums were just going to be too large and it was just getting too hard and they weren't getting anywhere".

PLW, forecast to make net profits of $5.5m (£2.28m) to $6m (£2.49) in the year to next June, is a minnow. Some investors suggested that Southcorp, Australia's largest wine producer, might be the next target.

Anthony Geard, of Investec Securities in London, disagreed. "If they do buy anything else, it will be pretty small," he said. "Southcorp would be a big, lumpy transaction that would set their return on invested capital timeframe for their wine business back quite materially, jeopardising the credibility they have built up with the marketplace." Mr Geard said: "They probably embarked on Peter Lehmann with a win-win scenario in mind. Either they bought the asset at a decent price, or they used it as an opportunity to remind the market that they will be very disciplined from a capital spend point of view. They highlighted that they will not overpay for wine assets."