Chalone Agrees to $82 Million Sale to France's Rothschild Group
California wine company may go private, become part of three-way joint venture
Tim Fish
Posted: November 1, 2004
In a deal worth about $82 million, Domaines Barons de Rothschild (Lafite) has agreed to buy the half of Chalone Wine Group that it does not already own and take the publicly held California company private again. The French firm, which currently holds a 46 percent stake in Chalone, will then transfer Chalone's holdings into a new joint venture with global beverage giant Constellation Brands and Napa Valley's Huneeus family.
In an agreement announced today, Domaines Barons de Rothschild (DBR), which is owned by the Rothschild family and Château Lafite Rothschild, will pay $11.75 a share for Chalone's 7 million outstanding shares. That's $2.50 more per share than DBR's initial offer, made in May. Since then, a special committee of the Chalone board of directors (excluding board chairman Christophe Salin, who is president of DBR) has been negotiating the deal, under which DBR will also assume about $60 million in Chalone debt.
The deal is subject to shareholder approval, and a vote is not expected until early next year. Until then, Chalone Wine Group (CWG) will remain open to other possible offers. Under the agreement, DBR has agreed to either match any higher offer or sell its 46 percent stake to the higher bidder.
In the meantime, "Its business as usual still," said CWG president and CEO Tom Selfridge, who declined to comment further on the deal.
The joint-venture partners plan to create a high-end wine company worth an estimated $300 million to $325 million, said Agustin Huneeus Jr., who has been instrumental in putting together the offer. The venture would bring together the brands in Chalone's portfolio with the Huneeus' Quintessa wine estate and brand; a 240-acre Napa vineyard (adjacent to Silver Oak winery in Oakville) owned by Constellation and worth about $27 million; and a new Napa estate to be developed by DBR, about which no details were available.
Fairport, N.Y.-based Constellation Brands--which owns brands such as Franciscan Oakville, Estancia, Ravenswood, Simi, BRL Hardy, Almaden and Paul Masson--will also contribute about $52 million to the deal, said spokeswoman Philippa Dworkin. Constellation will own about 37 percent of the venture, while the Huneeus family will hold about 33 percent and DBR will own slightly less than one-third.
Constellation was drawn to the deal, Dworkin said, "Because it strengthens our luxury portfolio. We will have a very strong portfolio across all price points." Publicly traded Constellation is allowed by law to own shares in a private company, and transferring the vineyard to the new private partnership can be an advantage for tax purposes.
Huneeus, the former CEO of Franciscan Estates, Constellation's fine-wine division, does not believe the consummation of the deal will affect Constellation's recent $970 million bid to buy Robert Mondavi Corp.
If the deal is approved, Huneeus will become CEO of the yet-to-be named joint venture. The fate of Selfridge and other current Chalone managers is up in the air.
Chalone Wine Group, founded in 1972, has expanded from its original Chalone winery to include California brands such as Acacia, Echelon, Edna Valley, Jade Mountain and Provenance, as well as Washington's Canoe Ridge and Sagelands wineries. The company went public in 1984. Its stock price has been stagnant in recent years, but its wine club discounts have been a crucial part of Chalone's appeal to many private shareholders.
Chalone shareholders, except for DBR and its affiliates, will receive a one-time wine dividend of $1 per a share, which will come out of Chalone's wine stocks, and they will continue to receive wine club discounts for several years.
The deal was set up, Huneeus said, to appeal both to financially minded stockholders and to those who own stock simply to have better access to Chalone wines. "Our offer in that way was is unique," Huneeus said. "We structured it to keep both happy."
