The shock announcement from Australian Vintage on the termination of CEO Craig Garvin’s contract, of course, sparks numerous questions.
What had it been about Garvin’s “conduct” that, in the view of the Australian Vintage board, demonstrated “a lack of judgement” by the chief executive?
Go deeper with GlobalData
What was it about that conduct that made it “inconsistent with the values of the company and the high standards expected of its chief executive officer”?
For now, no details have emerged. Garvin is reportedly weighing up his legal options. The Australian newspaper has said the former dairy-industry executive is considering embarking on a defamation case.
The personal ramifications are serious but, strategically, the news could also have profound consequences for Australian Vintage the business.
In February, the McGuigan wine brand owner said it was in “very early” talks over a potential merger with domestic peer Accolade Wines.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataAt the time, Australian Vintage said it was in “exploratory discussions” with Accolade, home to brands including Echo Falls and Kumala. It underlined, however, that there was “no certainty that any transaction will eventuate”.
The news of the talks came just weeks after an investor consortium took over Accolade to “build a more secure long-term future of the business”.
Last year, Australian Vintage launched a strategic review to “expedite value unlock”, which Garvin insisted at the time was not about selling the business.
However, the news of the discussions between the two Australia-based wine majors came five days after Australian Vintage booked a set of half-year results that included a dip in revenue and a 78% slide in net profit.
The company said it had “achieved margin and underlying earnings improvement”, pointing to growth in its underlying EBIT and net profit.
Garvin said the company was operating in “challenging industry conditions” but “efficient brand investment” and moves to remove costs from the business had, he said, boosted earnings and cash flow.
Nevertheless, Australian Vintage’s first-half net profit stood at A$2.8m ($1.9m), versus A$12.9m a year earlier and, given the difficult macro conditions facing the country’s wine sector, it wouldn’t be hard to understand why a possible combination with one of its peers might appeal to elements of the group’s management and board.
However, Garvin’s departure means that all of a sudden there are question marks about the prospect of a deal.
In the statement announcing Garvin’s departure on Friday (3 May), Australian Vintage said his exit “should have no impact on the preliminary discussions” between the two companies.
It added: “Those discussions are continuing, although there remains no certainty that any transaction will eventuate.”
The Australian Financial Review reported yesterday that the MD of Australian Vintage’s largest investor said the winemaker’s chairman owes shareholders more details on the decision to fire Garvin.
According to The Australian, Simon Mawhinney, the MD of investment fund Allan Gray, met with Australian Vintage chairman Richard Davis yesterday to get more information about the reasons for the sacking.
Mawhinney reportedly also has concerns Accolade may have the upper hand in the negotiations.
The narrative around the sale of Accolade and the recent corporate manoeuvres at the group suggest the company has itself found the going tough in recent quarters.
The deal was constructed by a consortium of funds backed by existing Accolade financial partners Bain Capital Special Situations, Intermediate Capital Group, Capital Four, Sona Asset Management and Samuel Terry Asset Management. More pertinently, the transaction was, it was stated at the time, part of a recapitalisation plan to salvage the company’s “unsustainable balance sheet”.
“Like all Australian winemakers, we have been hit by a number of challenging macro-economic and industry headwinds in recent years,” CEO Robert Foye said in February.
“Despite our strong stable of brands and leadership positions in key markets, as well as operational measures taken to strengthen the business, our ability to respond to these challenges and grow has been hampered by an unsustainable balance sheet.
“With this recapitalisation and the support of our new shareholders, we will be ideally positioned to take advantage of the significant opportunities to meet customer demand and grow sales around the world.”
Last year, Accolade disposed of several assets – including ginger wine brand Stone’s and sparkling wine brand House of Arras.
It’s no real surprise therefore as to why Accolade was at least willing to get around the table with Australian Vintage to discuss a possible tie-up.
And perhaps Garvin’s departure will not just be sending shockwaves around Australian Vintage but at Accolade, too.
