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james suckling uncorked

The Fact of the Matter on New Year's Eve

Posted: Dec 31, 2008 1:37pm ET

I just read a story from the Sunday Times of London that Château Latour, the famous first-growth estate in Bordeaux, is looking for a buyer. And I had to laugh. Anything is possible, but I know that it isn't. In fact, I heard that Latour's owner, Francois Pinault, the French fashion magnate, is looking to buy another property in Bordeaux at the moment.

Granted, I am sure that Pinault has lost a lot of money in 2008 with his investments in his luxury-goods group PPR. It includes such high-end names as Gucci and Puma, as well as Christie’s auction house. Just about all luxury brands are taking a hit at the moment, and it is only going to get worse in 2009, according to my friends in that world. But I don't think he wants to sell the Hope Diamond of his investments. I am not so sure he considers Latour an investment anyway. The wine estate gives him an incredible amount of prestige, and he loves to drink the powerful, long-aging, Cabernet Sauvignon-based reds of the estate. I am sure he would rather sell some of his amazing art collection, which is worth hundreds of millions of dollars, before selling Latour.

The biggest joke of the Times story was the price. The piece said that Latour was selling for between $210 million and $280 million. I think a real price would be three or four times that, even with the decline in the property and wine market.

Anyway, I know that this doesn't have much to do with most of us. We don’t drink Latour very often, as amazing as the wine is. Maybe prices will come down enough in 2009, so that more of us can? I hope so. I wish that I was sipping a bottle of it tonight for New Year's Eve, but I will be in Fleming's Steak House in Rancho Mirage with my mom and two children before taking in a movie. That restaurant doesn't have any Latour on the list, and I am not spending that sort of money tonight anyway. I will probably go for a California Syrah or something—it’s a long way from the world of luxury goods and multimillion dollar châteaus.

Happy New Year!

Matt Scott
Honolulu HI —  December 31, 2008 3:05pm ET
Very Insightful. Happy New Years James. I hope that you and your family have a safe and wonderful night. The wife and I will be drinking Charles Ellner Rose' NV ($35 a bottle!), shelter from the rain and hope to watch some grand fire works! Honolulu can sometimes look like a Kiss concert come 11:00pm. Cheers!
Gene Keenan
san francisco —  December 31, 2008 5:33pm ET
i dunno, if you look at a multiple of 4x for the purchase price then 1 Billion would be an amount the buyer would never be able to get out in terms of sales. Latour produces 18,000 cases of the good stuff. If it retailed at an average of $500 a bottle and say Latour netted roughly 50% of that retail cost or $250 a bottle you wind up with a yearly net of $54 million US (this excludes production costs of say $30/bottle?). A 1 billion price tag would never see a return on your investment. I think the price of $280 million seems about right. My math is probably wrong but it's not off by $750million... I think someone more business savvy than me could chime in with a realistic break down. Latour must make money through other channels that I dont know about besides their second label Les Fort.
James Suckling
 —  December 31, 2008 5:38pm ET
I think Latour nets more off a bottle of wine from its cellar, Gene.
Lorenzo Erlic
victoria canada —  December 31, 2008 6:15pm ET
To James: Happy New Year to you and your family this year and onwards. Aloha Matt; yes the firework smoke in Honolulu New Year's Eve is quite surreal. I would pair the smokey notes with a rich creamy Pommery NV Brut. Just keep the flute close enough to see.
John Lin
TW —  January 1, 2009 12:33am ET
Alas, even Chateau Latour does not have a cellar housing millions of bottles of older vintages (like some Champagne houses). The annual turnover and the "average" profit from each vintage will be more of a pricing factor, IMHO.
Ralph Michels
The Netherlands —  January 1, 2009 10:07am ET
1 billion is very high imho. for usual production related businessmodels the company value is around 1 x annual turnover or about 8 x ebitda.

I think with 150.000 bottles of the Grand Vin and 150.000 bottles of the Les Forts, you can make a turnover of 100 mio euro.

ending up with a 40 mio ebitda would be outrageously good, but let us assume this very positive scenario

So, based on my assumptions the value would be somewhere around 100mio euro or perhaps around 300 mio euro. So, the value of 210-280 mio dollars does not sound as a joke to me.
James Suckling
 —  January 1, 2009 10:28am ET
I think you are forgetting something. The 165 acres of vineyards, chateau and winery are worth something. Just for an idea. Chateau Margaux was valued at between $300 million and $400 million in Spring 2003 when Corinne Mentzelopolous bought back the controlling interest of the estate from the Angelli family. I may have overstated the value saying three or four times that, but it's worth a lot more than the fabricated story in the Sunday Times.
Jeffrey Ghi
New York —  January 1, 2009 3:40pm ET
Doesn't this story with latour always come on the market every few years? Last time I think the estimated value was about 500mm for the property before the massive real estate boom.
Matt Scott
Honolulu HI —  January 1, 2009 7:59pm ET
AlohaErlic! Thanks for the tip. I ran out and got a bottle of the Pommery. It was a perfect match with all the smoke. We had the Rose after words. Happy New Year!
Ralph Michels
The Netherlands —  January 2, 2009 3:35am ET
no, I did not forget them. Those are assets that are necessary for the production. when there are no vineyards or cellars, there is no wine that can be sold. Same as a beer brewery. The machines are necessary to make the beer.

You are right on the chateau. You do not need a chateau for making the wine. That brings extra value to the company, but that is just a small percentage of the company value.
Sandy Fitzgerald
Centennial, CO —  January 2, 2009 12:50pm ET
I believe all this analytical work is forgetting one thing. We're talking about a 1st growth Bordeaux property, not a piece of land in Kansas. Being an MBA myself, I can do all the value analysis reported above, but in the end those same calculations would say that a Buick would sell for the same price as a Bentley. After all they bought have wheels and seats and go from A to B. But a Bentley will sell for more because it is a Bentley. And Latour will sell for far more than your simple math implies because it is Latour.
John Shuey
Carrollton, TX —  January 3, 2009 9:22am ET
Whether or not Latour is up for sale at the moment, in all probability it will be in the mid-term. The reason - overlooked in the evaluation models above - the confiscatory inheritance taxes prevalent in the Euro zone, particularly France. Properties such as Latour simply cannot be passed on to the next generation.
Alex Bernardo
Millbrae, CA —  January 3, 2009 3:18pm ET
Decanter Magazine also reports this supposed sale based on the Times piece but also quotes a figure of at least E600m (in excess of $800m) from "sources in Bordeaux". So, indeed, about a 4x from the Times estimate as James mentioned.
Ralph Michels
The Netherlands —  January 4, 2009 1:26pm ET
@ Sandy

correct, that is why the valuation will probalby be based on the ebitda and not on the annual turnover.
Sam Chanhao
calgary —  January 5, 2009 1:57am ET
Happy New Year! James.You never know,James,in this crazy economic meltdown,anything's possible.The super rich seems to have more trouble than anybody else.Francois may need some juggling who know.I hope it's just a rumor! By the way,on my BD a few weeks back, I shared some wonderful wines with some friends. The Margaux 2000 was fantastic,the Cheval Blanc 1990 was superb but the most surprise to me that night was the Latour 2003..young but beautiful!! Oh!James,I have to tell you a funny story.This year I celebrate X'Mas with one of my drinking buddy. We went out for a nice dinner with somes great wines.Then we went to the hocky game,we managed to sneak in a coffee mug full of the 2003 Mouton and a half bottle of 2003 Y'Quem,we drank those wines out of straws during the game. The flame won the game.My friend and I had the best X'Mas ever!
James Suckling
 —  January 5, 2009 10:15am ET
What a fun story. I love doing stuff like that. Also, the 1990 Cheval is an amazing wine. It really is a classic. And the top 2000s are finally opening a little.
Gene Keenan
san francisco —  January 5, 2009 1:38pm ET

I agree with you but at the end of the day it is still a business.

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