Delegat's reaches for Oyster Bay

Photo / Herald on Sunday

Delegat's Group is making a takeover bid for grape grower Oyster Bay, which it says has been hit by an oversupply of wine and price pressure.

NZX-listed Delegat's has offered $1.80 a share in a full takeover of NZAX-listed Oyster Bay Marlborough Vineyards, which values the company at $16.2 million.

Shareholders in Oyster Bay - of which Delegat's already owns 54.9 per cent - could alternatively receive one share in Delegat's for each share in Oyster Bay.

Delegat's Group said Oyster Bay's profitability had been adversely affected by a continuing oversupply of grapes and consequent pressure on prices to the extent one of its banking covenants would have been breached but for a waiver until December 31.

Delegat's chairman, Robert Wilton, said: "The opportunity to swap a share one-for-one actually enables them to buy into quite a diversified company that not only has grapes and also processes, but importantly has a brand value to take to the marketplace."

Oyster Bay's grape sales for the year ending June 30 were down 28 per cent at $8.3 million, with an operating loss of $841,000.

The company had commissioned investment bank First NZ Capital to advise it on the most efficient and effective capital structure.

Oyster Bay, whose grapes probably account for 25 per cent of Delegat's total harvest, could have raised some equity and repaid debt, Wilton said.

"But the success of a rights issue to a company that's uncertain about paying dividends, well who knows what sort of success that might have generated."

Delegat's had enough cash to settle the acquisition if shareholders chose to take the money, he said, adding that it did not need shareholder approval to issue shares to Oyster Bay holders and the dilution would be minimal.

Taking Oyster Bay off the alternative NZAX exchange would provide a cost saving, Wilton said.

Shares in Delegat's closed up 11c yesterday at $1.75, while Oyster Bay was flat at $1.60.

Oyster Bay Marlborough Vineyards chairman Sandy Maier said the company would make a response and issue a target company statement.

"Until then we've just said to people we recommend you hang out and wait and see what we think," Maier said.

"We announced that we were going to do a review and we showed them a list of all the things we saw as possible ... it certainly wasn't a foregone conclusion or an invitation or any of that."

New Zealand Winegrowers chief executive Philip Gregan said it was a challenging time.

The grape harvest soared 39 per cent in 2008 to 285,000 tonnes, resulting in about a 27-million-litre oversupply, helping erode wine, grape and land prices. The harvests in 2009 and 2010 were 285,000 tonnes and 266,000 tonnes respectively.

The average grape price for the 2010 vintage was $1293 a tonne, which could increase slightly, compared with $2161 a tonne in 2008.

Gregan said: "We have seen one or two stand-alone vineyard operations go into receivership, we've seen a number of wineries go into receivership but the feedback we're getting from growers certainly is that they're struggling at the moment."

The Bid

* Delegat's is offering $1.80 each for all Oyster Bay shares.
* Takeover offer values the company at $16.2 million.
* Shareholders can take a Delegat's share rather than cash.
* Delegat's already owns 54.9 per cent of Oyster Bay.

Oyster Bay

* Grape grower formed by Delegat's Wine Estate in 1999.
* Owns three vineyard properties in the central Wairau Valley.
* 535ha of vines planted.

Delegat's Group

* Established in 1947.
* Produces and markets Delegat's and Oyster Bay wines.
* Sold 1.95 million cases of wine in year ended June 30.