Southcorp Proposes Merger to Put Off Foster’s Takeover Bid

Australian winemaker Southcorp Ltd. proposed a merger with global brewing giant Foster’s Group Ltd. on Tuesday in hopes of staving off a hostile takeover bid from Foster’s -- an offer that Foster’s quickly rejected.

Foster’s, also based in Australia, said it was standing by its takeover offer to create one of the world’s largest wine companies, saying it remained the best option for shareholders of both companies. It said that the merger proposal was “a clear acknowledgment that Southcorp is actually for sale” and that “there is a compelling strategic rationale for a combination” of the two companies.

Southcorp, whose brands include Penfolds, Rosemount Estate and Lindemans, has urged shareholders to reject the 3.1-billion-Australian-dollar ($2.5-billion) bid by Foster’s, saying it does not adequately reflect the value of the company.

Under the proposal, Southcorp would remain a stand-alone business, and Foster’s would gain a controlling stake of 57% to 60%.

Foster’s holds an 18.8% stake in the winemaker.

In a letter to Foster’s Chairman Frank Swan, Southcorp Chairman Brian Finn called the proposed merger “a constructive alternative” to the stalemate between the two companies.

Under the proposed deal, Finn said, “we would both have created an Australian company that would have a leading international position in the world of wine and in which both Foster’s and Southcorp shareholders would participate.”

Combining the two companies would create the world’s fourth-largest wine company by volume, with a market capitalization of more than $11.1 billion.