AVG Australian Vintage Ltd

Australian Vintage Ltd. (AVG.AU) said Wednesday that talks with wine-industry giant Constellation Brands Inc. (STZ) about a potential merger of their Australian and U.K. operations are now focused on Australian Vintage taking a controlling stake in the combined business.

Earlier this month, Constellation, the world's largest winemaker by sales, said it was in talks with Australian Vintage in an effort to improve the prospects for its Australian and U.K. business. In those discussions, however, the two were negotiating the creation of a new business in which Australian Vintage would have a substantial but non-controlling stake.

On Wednesday, Australian Vintage Chairman Ian Ferrier said in a statement that "I can't be definitive, but our discussions at this stage are focused on a deal where Australian Vintage would purchase part of Constellation's business with Australian Vintage shares and existing (Australian Vintage) shareholders would hold the controlling interest in the combined business."

Talks are continuing and Ferrier said "a number of material issues remain outstanding".

Constellation, which makes Australian brands such as Hardys, Banrock Station and Stonehaven, has been restructuring its Australian unit for months.

Australian Vintage makes wine brands such as Miranda, Yaldara and Sunnyvale.

The Australian wine industry has been dealing with a grape glut and wine oversupply for a few years now. Australian Vintage said 20 million to 40 million cases of wine are produced in excess of demand in the country presently.

Other beverage companies, like Foster's Group Ltd. (FGL.AU), have been restructuring their wine operations as well to contend with these and other issues like waning demand in the U.S. for its higher priced wines.

-By Cynthia Koons, Dow Jones Newswires; 61-2-8272-4691; cynthia.koons@dowjones.com

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