Mondavi to Sell Arrowood and Byron Wineries

Company's merger with Constellation also won't include Seña in Chile

Daniel Sogg
Posted: November 19, 2004

Mondavi is proceeding with its original plan to sell Byron, above.

As Constellation Brands' proposed $1.03-billion cash acquisition of Robert Mondavi Corp. moves toward completion, the companies have indicated that two of Mondavi's California wineries, Arrowood Vineyards in Sonoma County and Byron in the Santa Maria Valley, are slated for sale. Mondavi is also exiting its joint venture in Chile, selling its half of Seña and Arboleda to its partners.

Mondavi Corp., which bought Byron in 1990 and Arrowood in 2000, had announced in September that it planned to sell these properties, along with all its other high-end estates, including Robert Mondavi Winery in Napa Valley. The publicly traded corporation intended to focus on its value brands, such as Woodbridge.

But execution of that plan went on hold in mid-October when Constellation offered to buy Robert Mondavi Corp. in its entirety. Now Constellation has decided that it prefers that Mondavi sell some of the luxury wineries. "Excluding Byron and Arrowood, what you are left with is a business that can be profitable and will be profitable," said Phillipa Dworkin, senior vice president of communications at Constellation.

No details about potential buyers were revealed, but Mondavi's most recent quarterly report, filed with the Securities and Exchange Commission on Nov. 15, indicated that the company will not be making a profit on the sale of Byron and Arrowood.

The quarterly report also indicated that Mondavi signed an agreement on Nov. 11 to sell its 50 percent interest in the Seña and Arboleda brands for $700,000 to its partner in these brands, the Eduardo Chadwick family of Viña Errazuriz in Chile.

The status of Mondavi's other joint ventures--Opus One in Napa Valley, a project with the Baroness Philippine de Rothschild of Bordeaux's Château Mouton-Rothschild, and Ornellaia and Luce della Vite in Italy, a partnership with the Frescobaldi family of Tuscany--remains unclear. "We would hope that the joint ventures would remain with us," Dworkin said. But both of those partners have the option to buy out Mondavi's stake in the projects, and inside sources have indicated they would like to do so.

Mondavi said it anticipates that the sale price for Byron will be about $11.5 million less than the book value the company had assigned the asset. Since Mondavi was not yet a publicly traded company when it bought Byron, the cost of the original transaction was not announced. Byron, which focuses on Pinot Noir and Chardonnay, makes about 45,000 cases a year.

Mondavi said it expects that the sale of Arrowood should bring in $18 million to $22 million, which would be $16.5 million to $20.5 million less than the total purchase price. Mondavi does not yet fully own Arrowood; its original deal was structured over 10 years, with Mondavi first acquiring the operating rights and production, then acquiring the winery and vineyards in 2005 and then the brand in 2010. In order to complete its purchase of Arrowood before selling it, Mondavi will pay $20.5 million to Richard and Alis Arrowood, who founded the estate in Glen Ellen in 1984 and have continued to work at the winery. Its current annual production is about 30,000 cases, mostly Cabernet Sauvignon, Chardonnay and Syrah.

Arrowood Vineyards is expected to be sold for as much as $22 million to a buyer other than the founding Arrowood family.

The identity of Arrowood's new buyer might be known as early as next week, Richard Arrowood said. While he and his wife had initially thought about purchasing the property back, they reconsidered after evaluating prevailing market conditions. "Even if we did have right of first refusal, I'm not sure we would have exercised it," he said. "It's a thin, thin margin marketplace right now."

Depending on the buyer, the Arrowoods might consider continuing at the winery as partners or employees. Whatever happens, Richard Arrowood said he will continue making wine in Sonoma, possibly at the 120-acre property he owns three miles south of Arrowood winery. "I'm looking forward to speaking with the new owners, whoever that may be," he said. "And if it works out, that's good. And if it doesn't, that's fine too. But come hell or high water, I'll be staying in the business in one capacity or another."

Constellation hopes to conclude its acquisition of Mondavi by the end of the year. "It's an aggressive timeline, but it may be able to be done," Dworkin said.

A preliminary proxy statement filed by Mondavi today with the SEC indicates that winery founder Robert Mondavi, and his children Marcia and Tim, who control a majority of the company's Class B voting shares, have granted Constellation an irrevocable proxy supporting the merger. Robert's other son, Michael, who resigned from the company earlier this fall but who continues to hold a substantial amount of Class B shares, is not mentioned in that agreement.

A shareholder vote on the merger is still required; Mondavi has not yet set a date, but by law, shareholders have a minimum of 30 days to review a proxy statement.