Chalone Is in Play, as a Higher Bidder Emerges
The California wine group will turn down its original buyer unless a counteroffer is made
Tim Fish
Posted: December 13, 2004
A mysterious new suitor entered the bidding for Chalone Wine Group today, trumping an existing bid by $2 a share and essentially offering $185 million for the Napa-based wine firm. (The Los Angeles Times identified the bidder on Dec. 14 as U.K.-based Diageo, according to anonymous sources; the company owns Beaulieu Vineyard and Sterling in Napa Valley, as well as liquor and beer brands.)
Chalone is now rejecting the initial buyout offer by Domaines Barons de Rothschild (Lafite) that it agreed to on Nov. 1. The French firm now has until midnight Friday to make a counteroffer. Chalone declined to identify the new bidder until after Domaines Barons de Rothschild (DBR) responds.
The new offer for the publicly held Chalone Wine Group is $13.75 a share for nearly 13.5-million outstanding shares. DBR already owns about 49 percent of Chalone, and in May it offered $9.25 for each of the remaining shares, only to up the ante to $11.75 a share in November.
DBR, which is owned by the Rothschild family and Château Lafite Rothschild, has plans to take Chalone private and transfer its holdings into a new joint venture with global beverage giant Constellation Brands and Napa Valley's Huneeus family, which owns Quintessa winery.
"This was very unexpected," said Agustin Huneeus Jr., who has been instrumental in putting together the DBR offer. "I thought anyone who was interested would have come out months ago."
The agreement between Chalone and DBR, Huneeus said, would not require DBR to top the new bid but simply match it. If DBR ends up losing its bid for Chalone, the agreement would also require that DBR sell all of its stock to the new owner. If Chalone ultimately accepts the other bid, it will be required to pay DBR a $2.5-million termination fee.
"My instinct is we'll take another stab at it," Huneeus said.
In morning trading on Nasdaq, Chalone's share price jumped about 17 percent as investors pondered the possibility of a bidding war.
The pending deal to buy Chalone has been overshadowed this fall by Constellation's $1-billon bid for Robert Mondavi Corp. Some industry insiders said they believe Constellation's aggressive new moves into the fine-wine industry may have spurred new interest to compete for Chalone. Diageo, or other major alcoholic beverage companies, many want to add more wine brands so they can retain their distribution clout in the market.
Publicly traded Constellation, which is based in Fairport, N.Y., is now the world's largest wine marketer. In recent years, it has been transforming itself from a company built largely on inexpensive wine brands--such as Almaden, Paul Masson and Richard's Wild Irish Rose--into one that owns respected California names such as Ravenswood, Simi and Franciscan Oakville.
In addition to the Mondavi bid, which is subject to stockholder approval at a Dec. 22 meeting, Constellation spent $80 million earlier this month to acquire a 40 percent interest in the well-known Italian producer Ruffino.
The DBR joint-venture partners plan to create a high-end wine company worth an estimated $300 million to $325 million, Huneeus said. The venture would bring together the brands in Chalone's portfolio with the Quintessa wine estate and brand; a 240-acre Oakville vineyard owned by Constellation and worth about $27 million; and a new Napa estate to be developed by DBR, about which no details were available.
Chalone Wine Group, founded in 1972 and taken public in 1984, 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. Its stock price has been stagnant in recent years, but its wine club discounts have appealed to many private shareholders.
Whichever bid for Chalone is successful, the deal must be approved by Chalone stockholders. That won't happen until sometime in early 2005.
