Friday, November 04, 2005

Vincor Goes on the Offensive

The excerpt below is a pretty interesting read, taken from Vincor's formal response to Constellation's offer. It shows a bit of the hardball tactics that are taken in these transactions and that Constellation doesn't mess around when they make you an offer you can't refuse...

That meeting was held on Tuesday, September 27, 2005. In attendance at the meeting were Richard Sands, Paul Hetterich, Robert Sands, President and Chief Operating Officer of Constellation, and Messrs. Hilson, Triggs and Jones. At the meeting, Constellation was advised of the views of Vincor’s Board of Directors on the $30.00 to $34.00 price outlined in Constellation’s approach, which views were arrived at following detailed discussion and input from BMO Nesbitt Burns and Merrill Lynch. Constellation was advised that its value indications were not compelling and that the price articulated did not reflect the very significant synergies available to Constellation that must be shared with Vincor’s shareholders, but that any proposal that served the interests of Vincor’s shareholders would be entertained. Mr. Sands said that Constellation’s analysis of Vincor as a stand-alone business suggested that with resolution of the UK issues and not in a change of control context, Vincor could be worth up to $35.00 per share in two or three years. Mr. Sands indicated that Constellation would write a letter to the Board proposing a price of $31.00, but ‘‘would not limit the upside’’ if it found that the business was ‘‘worth it’’. He stated that other than achieving a return of Constellation’s cost of capital plus a small increment, the remaining value of the synergies would be available to Vincor shareholders in the form of an increased offer price. Mr. Hilson indicated to Mr. Sands that the synergies in this situation were very significant (approximately equal to analysts’ estimates of Vincor’s 2006 EBITDA of $116 million, which do not reflect the implementation of the Company’s profit improvement initiatives, which are expected to add approximately $5 million to EBITDA in the second half of the current fiscal year), and that he should think in terms of a doubling of Vincor’s EBITDA. In discussing the general nature of the synergies, Richard Sands readily acknowledged that Constellation may have ‘‘severely underestimated the synergies available’’ to it and Mr. Sands stated that if that were the case ‘‘the sky is the limit on price’’. These positive comments are in marked contrast to Mr. Sands’ subsequent public statements regarding price and possible synergy levels. Mr. Sands then indicated there would be no top to the range offered. Nevertheless, Mr. Sands indicated that if an agreement on a transaction could not be reached at that meeting, Constellation would publicly announce its approach to Vincor. Since Constellation was not prepared to propose a price that fairly valued Vincor, no agreement was reached.

At approximately 2:00 p.m. on September 27, 2005, Richard Sands sent a letter to Messrs. Hilson and Triggs threatening to publicly announce a proposal for Vincor at $31.00 per share unless Vincor responded positively to Constellation’s $31.00 proposal by 5:00 p.m. that day. Prior to the 5:00 p.m. deadline set in Mr. Sands’ letter, Mr. Hilson responded in writing that Vincor’s Board of Directors would be meeting within 24 hours to consider Mr. Sands’ letter and that the Board would be responding after that meeting.

At approximately 6:00 p.m. that day Mr. Hilson received a call from Mr. Richard Sands calling from his cell phone. On that call, Mr. Sands warned Mr. Hilson that Constellation would issue a press release announcing its $31.00 approach in five minutes but he indicated that, if Mr. Hilson would personally support it, a price of $36.00 or higher would be available subject to due diligence (with an indication that the offer could be lowered but not below $33.00) after the signing of a confidentiality agreement containing only a 90-day standstill provision. Mr. Hilson responded that as chairman of a public company, he could not make a commitment on a matter of such significance without consulting his board and that it was unreasonable to request that such a commitment be made in just five minutes. Mr. Sands responded that Constellation must then issue its press release, which it did. Mr. Sands has denied on several subsequent occasions having offered the $36.00 or higher price and, moreover, has said Constellation would not pay that price for Vincor’s Common Shares. Notwithstanding that statement, Constellation has disclosed in its Circular that on October 6,
2005 it paid US$30.97 (the equivalent of $36.61) for 1,000 Common Shares of Vincor.

On September 28, 2005, Vincor issued its press release rejecting Constellation’s $31.00 approach as inadequate and not in the best interests of Vincor’s shareholders.

I look forward to seeing how Vincor's shareholders respond to this.


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