Wilson Distillers doubts future profitability

Press, 9 May 1981, Page 21

Wilson Distillers doubts future profitability

PA Dunedin Doubts about the future profitability of the distilling industry influenced the directors of Wilson Distillers. Ltd, to favour accepting a takeover bid under which Seagram (N.Z.). Ltd. would acquire the whisky undertaking.

This information is revealed in Gregg's Ltd's formal take-over document mailed to Wilson shareholders on Thursday.

The Seagram interest extends to the whisky undertaking only. The Wilson board recommends the bid as being more advantageous than simply selling the distillery to Seagram. However, on completion of the take-over, Seagram would acquire the distillery in accordance with an agreement already made with Wilsons.

Main features of the offer are a cash payment of 150 c a share, payable within seven

days of the offer becoming unconditional. The offer is conditional on acceptance of 90 per cent of the shares not owned already by Gregg's. With the food processor’s 49 per cent this would mean a target of 97 per cent, but Gregg's says it will accept a reduced target of 75 per cent. Closing date for acceptances is 5 p.m.. June 11, but this is extendable. Wilson’s directors say that shareholders might question the logic of disposing of the whisky undertaking now that profitability has been achieved.

“But a major factor which influenced your directors in their decision was the future profitability of the industry and possibilities of expansion.”

They say that the undertaking would have to produce a tax-paid profit of $400,000 to give an earnings yield of 16 per cent for a

share priced at the offer level of 150 c.

To yield 20 per cent, which is the' more likely expectation for a company of this type, the tax-paid profit should be $500,000.

“In the light of market experience achievement of such returns must be regarded as extremely difficult ... and would certainly require further Government assistance. Repeated efforts to obtain such assistance have been unsuccessful.”

The directors point also to the serious problems involved in financing future operations. Production of whisky for the last four years has been restricted to the minimum necessary to retain the distilling licence and stocks of matured spirit are being depleted. These stocks must shortly be replenished and production at much higher cost levels would offset the recent improvement in cash flow.