The world's biggest wine company is set to be created by the end of the week as BRL Hardy and Constellation Brands get into the last stages of merger talks.

The two giant companies – Hardys, Australia’s second-biggest wine company, is worth US$800m, Constellation three times that – have confirmed their discussions are at an advanced stage, although there was no assurance a deal would go through.

Both US-based Constellation and Hardys have agreed to pay pull-out fees if either backs out of the merger. The companies have already been working together – in 2001 they set up Pacific Wine Partners, a hugely-complicated joint venture for the distribution of hundreds of brands worldwide.

The new company, if the deal is finalised, will be worth around US$3.4bn. The companies concerned own a plethora of big-name brands.

BRL Hardy’s 17 wine brands include Banrock Station, Stonehaven, Nottage Hill, Hardys, and La Baume in France’s Languedoc.

Constellation has Canandaigua wines, premium producer Franciscan Estates – which includes such wineries as Chile’s Veramonte – UK wholesaler Matthew Clark, Stowells of Chelsea, Dry Blackthorn cider and a range of beers including Corona, Tsingtao, Tetley’s bitter and Peroni.

Observers reckon its unlikely a rival bidder will emerge because of the difficulty of breaking up Pacific Wine Partners.

Financial analysts are giving the merger a cautious welcome. ‘Until we know the full structure of the transaction it is hard to assess, but at the current share price we think BRL Hardy is fully valued,’ UBS Warburg analyst David Robertson said.

The deal will put BRL Hardy at between AU$9.50 (US$5.5) and AU$10.50 (US$6) a share, making the entire company worth up to AU$1.9bn (US$1.11bn), compared with Constellation’s market value of AU$3.9bn (US$2.28bn).

Other industry professionals were positive. Allan Cheesman, Sainsbury’s consultant and former BRL Hardy UK marketing director said, ‘Some people think these gargantuan companies kill off choice and suppress the little winemakers. But the reality is, being owned by a company like BRL Hardy is great for the winemaker – it gives them freedom to invest, experiment with new styles.’

Written by Adam Lechmere, and agencies14 January 2003