Australian star enters US wine universe

The largest wine company in the world was created yesterday when Constellation Brands of America unveiled a $1.4bn (£870m) takeover of Australian rival BRL Hardy.

Together the two groups own eight of the 20 top-selling wine brands in Britain, including Black Tower, Stowells of Chelsea, Hardy's VR and Banrock Station.

"There really hasn't been a truly worldwide wine business before," said Steve Millar, the BRL managing director who will run the combined wine operations. "There is no Coca-Cola, Microsoft or Nestlé of the winemaking world. We certainly intend to be just that."

Joining the two businesses will create a powerful Pacific Rim union of new world operators with wine sales of $1.7bn. It will also pose a further challenge to old world producers, many of whom have resisted market pressure to increase scale and modernise their brands.

The deal will make Constel lation market leader in Australia and the UK; and the number two player in New Zealand and the US, the world's most lucrative market.

"New world wines are what's hot at the moment," said Richard Sands, the chairman and chief executive of Constellation. "They are replacing European wines throughout the markets of the world."

Drinks companies Diageo, Pernod Ricard and Fosters are all thought to have considered making offers for BRL in recent months, hoping to buy into the soaring popularity of Australian wines. Yesterday analysts said Constellation's generous offer price and an existing US joint venture with BRL meant rival bids were now unlikely.

Wine exports from Australia have grown ninefold to A$2.3bn (£840m) in the past 10 years, recently overtaking French wine as the second most popular import in America behind Italian produce. Sales of Australian wine have also overtaken French rivals as market leader in the UK.

New York-based Constellation is offering BRL investors A$10.50 a share, or an equivalent value in Constellation shares, representing a 37% premium over BRL's share price before merger talks were announced on Monday.

The US firm, which is using new banking facilities to help fund the deal, will also assume $325m in BRL debt, taking net debt at the enlarged group to an anticipated $2.5bn.

This has prompted S&P and Moody's to put Constellation on credit watch, though the company insisted it would be comfortable with debt levels and did not anticipate big disposals.

In the UK, where the two producers already sell 20% of branded wines, Constellation will merge the Matthew Clark business with BRL's 100-strong British team as part of efforts to save $20m. The combination is expected to produce job losses but Mr Sands said no wine brands would be scrapped.

Aggressively branded wines - particularly new world offerings such as Paul Masson, Nobilo and Nottage Hill - continue to outsell traditional products in an expanding British market.

Branded wines now generate about half of all UK wine sales, winning over drinkers with their unpretentious accessibility.

As a spokesman for Matthew Clark put it: "People can only ask for it if they know how to pronounce it. They know how to say Jacobs Creek or Stowells. It's less of a mouthful than Pouilly-Fuissé Domaine Corsin."