Accolade has walked away from merger discussions with Australian Vintage

The makers of McGuigan wines says Accolade has walked away from merger discussions, with the winemaker now facing bulging debt and shares that will remain suspended for two weeks as it seeks to raise fresh capital.

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Australian Vintage, the makers of McGuigan and Tempus Two wines, is now scurrying to raise fresh capital and restructure its bloated $75m debt pile after the nation’s second-largest winemaker Accolade pulled the plug on merger discussions.

It now leaves Australian Vintage now highly exposed to the downturn in the wine sector and its rising debt levels.

The reason for the collapsed Accolade merger talks was given as the recent failure by Accolade to win grape grower support for its plan to buy out their grape supply contracts in the face of collapsing grape prices and an excess of wine supply both locally and overseas. It was hoped by Australian Vintage shareholders, who have seen their share price collapse by almost 90 per cent from its highs, that a merger with the much larger Accolade, which owns brands such as Hardys, St Hallett and Banrock Station, would make a stronger company and help it face the challenging trading conditions.

In a further shock to investors, Australian Vintage also warned on Monday that its shares will need to remain suspended for another two weeks – despite advising investors an announcement on its trading performance would be made on Monday – as it seeks to organise a capital raising and debt restructure.

The struggling winemaker put its shares in a trading halt on Thursday as it prepared to make a trading update, due on Monday, however, that trading halt will need to remain until at least June 11 as the company seeks to raise cash and restructure its debt which has blown out to as much as $75m.

“Australian Vintage requests that the suspension continue until such time as Australian Vintage releases an announcement to ASX in relation to the proposed capital raising, debt refinancing and trading update, which is expected to be on or around 11 June 2024 and expects that the suspension will be ended by this announcement,” it said.

Australian Vintage is set to raise fresh capital and restructure its bloated $75m debt pile after the nation’s second-largest winemaker Accolade pulled the plug on merger discussions.

Australian Vintage has been in lengthy negotiations with the private equity owned Accolade, but the company announced also on Monday that on May 22 it received correspondence from Accolade via its advisers that it was “not in a position to continue discussions further at this time”.

It said Accolade declined to give further details for the reasons for pulling the pin on merger talks, but that Australian Vintage noted in its ASX statement that the decision was made after grape growers rejected a contract buy out from Accolade.

However, many believe Accolade decided to end its merger discussions after earlier this month Australian Vintage chief executive Craig Garvin was sacked, with the company releasing a statement to the ASX saying the reason was for unspecified, poor workplace behaviour and conduct that the company viewed as a “lack of judgment”.

The company did not further detail the exact nature of the conduct, and Mr Garvin is considering a defamation case against his former boardroom colleagues and a possible wrongful dismissal case after the company terminated his tenure.

Mr Garvin, who ran Australian Vintage for five years, has held discussions with his lawyers and there is a growing sense he is pursuing possible legal action over his shock dismissal, with his lawyers combing over the ASX statement which revealed his sacking, as well as the terms of his employment contract and relevant workplace law.

It is believed Accolade was unwilling to proceed with a merger following the departure of Mr Garvin, who was seen by Accolade as the natural person to run the combined group if the merger took place.

Meanwhile, Australian Vintage said its debt was expected to be in the order of $70m to $75m as at June 30. However, $15m of existing bank capacity is due to expire at the end of July 2024, reducing Australian Vintages bank capacity, including overdraft facilities, to approximately $78m.

“Given expected working capital requirements in the first quarter of 2025, Australian Vintage believes that commencing trading would be materially prejudicial to its ability to source additional capital, which is critical to support its continued financial viability and operations,” it said.

Australian Vintage had been locked in protracted negotiations with the nation’s second-largest winemaker, Accolade Wines, over a potential merger of the two businesses which would essentially see the backdoor of the much larger and private equity owned Accolade into the Australian Vintage ASX-listed vehicle.

Accolade is controlled by Bain Capital and owns high profile brands such as Hardys, St Hallett, Banrock Station, Grant Burge and Petaluma, with its owners look for a merger deal to place it in a stronger position amid heightened competition in the wine sector.

Recently DataRoom reported that the Bain Capital-controlled Accolade had kept the door open too for a deal with French drinks giant Pernod Ricard – instead of a backdoor listing with Australian Vintage – that would see Pernod Ricard merge its local wine portfolio that includes Jacob’s Creek, St Hugo and New Zealand’s Brancott Estate with the portfolio owned by Australian Vintage.

Bain gained control of Accolade in the past year as the lead in a lender group.

It was previously controlled by The Carlyle Group, which purchased the business in 2018 for $1bn.

The parent entity that owns Accolade Wines is controlled by Bain, Intermediate Capital Group, Capital Four, Sona Asset Management and Terry Asset Management.