Monday, February 12, 2007

McGuigan Simeon Wines using muscle

It seems like McGuigan Simeon Wines Limited (ASX:MGW) want the best of both worlds. Allegations that McGuigan Simeon Wines may have taken advantage of its market position are continuing to be investigated. By 12 February 2007 the Australian Competition & Consumer Commission (ACCC) had interviewed dozens of winegrowers.

Relations between the company and growers have been rocky since early 2006 when it suspended supplier contracts due to an oversupply of grapes. Now the impact of the drought has reversed the situation and McGuigan has demanded the suppliers provide grapes under the contracts. The rub is that spot market grape buyers are paying around $A400 per tonne and McGuigan is offering only $A200 per tonne.

The ACCC action is seen as the last hope for grapegrowers to combat the supply and cost imposition.

What does this mean for investors ? Well if McGuigan get there way then they will be able to increase profit margins but if they don't it could be very costly to them. One thing management shouldn't do is burn your suppliers.

McGuigan is overpriced on any future earnings. Given that management is also creating poor relations with suppliers I would stay clear of the company.

Good Luck Investing.

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