UPDATE 1-Constellation mulls deal for Australian, UK units

NEW YORK, Nov 1 (Reuters) - U.S. wine and spirits maker Constellation Brands Inc said it is talking to several companies to sell or merge a part of its Australian and U.K. wine operations. Constellation, owner of Robert Mondavi wines, has been struggling to sell off brands for at least a year as it battles a wine glut but, like its biggest rival Australia's Foster's Group Ltd, has had a tough time finding any buyers. It said it was "pursuing a number of opportunities with various parties to improve the prospects of its Australian and U.K. businesses." The talks include a potential combination of part of its Australian and U.K. operations with Sydney-based wine company Australian Vintage Ltd, in exchange for a substantial, but non-controlling, interest in the combined company. Such a deal would help the companies better tackle the challenges currently facing the wine industry, Constellation Chief Executive Rob Sands said. In a similar attempt to boost returns from its flagging wine business, Foster's last month transferred 13 Australian wine brands into a joint venture with a local liquor distributor, privately owned Vok Beverages. An analyst and an industry source said the solution was not ideal, because the main problem for the industry is oversupply. "They're just trying to create some more distance between the worst parts of the portfolio and the company itself," said Theo Mass, analyst at Fortis Investment Partners. "It gets stuff off the balance sheet rather than solving the problem." Australian Vintage shares sank nearly 6 percent to A$0.32, trailing the broader market, to value the group at A$41 million ($37 million). If Constellation and Australian Vintage, whose main brand is McGuigan, agree on a deal, the combined entity would operate as a standalone wine company listed on the Australian Stock Exchange. Both companies said discussions were at an early stage and may not result in a deal. Constellation has already sold off some less-expensive brands and closed certain facilities in the wake of an economic downturn that has softened sales and margins. The other big beverages company in Australia, Lion Nathan, which was recently taken over by Japan's Kirin Holdings, has previously said it does not intend to invest significant new capital in wine assets. ($1=1.110 Australian Dollar) (Additional reporting by Sonali Paul in Melbourne) (Reporting by Anupreeta Das; Editing by Bernard Orr and Ian Geoghegan) (([e-mail]; [phone])) Keywords: CONSTELLATION/ (Click on http://blogs.reuters.com/category/themes/mediafile/ to see Reuters MediaFile blog) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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