Constellation Brands Inc and Australian Vintage Limited - possible merger

Summary

At the time of the ACCC's review, Constellation Brands, Inc (CBI) and Australian Vintage Limited (AVL) were in discussions regarding a possible merger whereby certain of CBI's Australian and UK wine operations would be combined with AVL in exchange for a non-controlling 50% equity interest in the merged entity.

Market definition

The ACCC considered the possible merger in the context of the following markets:

- regional markets for the acquisition of wine grapes;

- a national market for the production and wholesale supply of bottled wine; and

- a national market for the production and wholesale supply of cask wine.

Competition analysis

Wine grapes
The ACCC formed the view that the possible merger is unlikely to substantially lessen competition in the relevant acquisition markets for wine grapes.

The ACCC recognised the current and forecast oversupply of wine grapes and wine in Australia, which, in conjunction with long-term contracts between some growers and wineries, limit switching options for growers in the foreseeable future.

While the merged firm would account for a large proportion of purchases from independent growers in some regions, the possible merger would not result in significant aggregation of such purchases, since AVL's purchases of grapes from independent growers are in decline.

Moreover, the ACCC considered that once overall supply and demand balance has been restored, the presence of alternative purchasers in all regions with the ability to expand their production facilities and grape purchases would provide a competitive constraint on the merged firm in the acquisition of wine grapes.

Wine
The ACCC formed the view that the possible merger is unlikely to substantially lessen competition in the relevant wine supply markets.

There would remain a number of large and mid-sized alternative suppliers of branded and private label bottled and cask wine, with excess production capacity and an ability to expand.