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Sizing Up a Montelena Sale

Photo by: Greg Gorman

Posted: Jun 13, 2008 1:55pm ET

When a winery the caliber of a Chateau Montelena is offered for sale, there are many ways to assess its value.

Potential buyers would look at sales and revenue, with the latter being the far more important figure, since inexpensive brands—think Two-Buck Chuck—can run up impressive sales numbers.

Cash flow is important, too, but the nuts and bolts of a Chateau Montelena kind of operation is its Cabernet vineyard. Chardonnay, Riesling and Zinfandel provide cash flow, but the vineyard is the driver.

Would-be buyers know that the 100-acre vineyard, known as the Montelena Estate, can produce grand, ageworthy wines. But it may also be old and in need of replanting. While great Cabernet vineyards can yield wines that bring huge prices, Cabernet vines don’t have the kind of longevity of, say, Zinfandel, and these days most wineries trying to compete with the elite have retooled or overhauled their vineyards, and Montelena is probably in need of at least some replanting.

Still, the ground is great, as evidenced by the best wines, and these days prime Cabernet turf can go for $300,000 an acre. Witness the zany bidding for the J.J. Cohn Ranch a few years ago. The property, which is now co-owned by the owners of Scarecrow and Francis and Eleanor Coppola of Rubicon Estate, triggered a bidding war that steeply escalated the price.

Then there’s the physical plant, winery and cellar, and Montelena is a spectacular property. The winery has been candid about some of its serious cellar issues. But keeping cellars clean is something all wineries face and Montelena probably needs some work.

Finally, there’s brand equity, and Montelena has a name and reputation that few in wine can match. I think the brand has faded, and my guess is the owners, the Barrett family, believe this is a good time to exit.

They’ve really had a great run, from starting a winery from scratch, to winning the Paris Tasting, to defining a style of Cabernet and Chardonnay that did exactly what they wanted them to do: Be classic, long-lived wines. Are there more challenges ahead for the Barretts? Perhaps. Winemaker Bo Barrett is in his 50s and can still make wine and his wife, Heidi Peterson Barrett, also has her own label, La Sirena. But I suspect that Jim Barrett, Bo’s father, senses this is now a good time to bow out. He’s always been his own man and likes to call his own shots.

There could be other reasons, of course. Land values have tumbled lately and business types hint that selling now allows the winery owners to benefit from favorable capital gains taxes, which are now low, but might be twice as high if they are increased in a new administration. And great Cabernet vineyards don’t come up for sale very often.

But there are many wineries in Napa these days that are “old” by business standards and facing inheritance and succession issues. Last year the owners of Stag’s Leap Wine Cellars and Duckhorn both sold. Looks like it might be time for Montelena as well.

The challenge for any would-be buyers is to avoid seriously overpaying. Emotions run wild, even crazy, with some wine deals, whether it’s consumers throwing money at cult wines or millionaires throwing money at land. If the new owners pay too much, their best choice to recoup that cash is by increasing production, and that’s where a lot of wineries get into trouble fast.

Sandy Fitzgerald
Centennial, CO —  June 13, 2008 5:54pm ET
Waiting to see if another great winery falls into the hands of one of the Big 7. The end results are predictable if that happens. Hopefully, another winemaking family steps up, but that's a lot of money.
Corbin Butler
June 13, 2008 6:55pm ET
When will we see Levy McClellan Scores?
Horacio Campana / Butler Me
Monterrey, Mexico —  June 13, 2008 8:52pm ET
Jim,In my country sales and revenue are sinonimous. Care to explain the difference you perceive?
Fred Brown
June 13, 2008 9:06pm ET

Thanks for the informative and insightful blog. I'm afraid that it is hard to see how the price of Montelena Cabernet could come down as a result of a sale, but maybe a cash infusion will bring the quality back toward where the cost would suggest it should be.
John Wilen
Texas —  June 13, 2008 9:37pm ET
I'm sure somebody with more money than sense will buy CM. Talk about destroying value. This winery is a mess. The people I've encountered there are rude. The wines are terrible. JL's CM estate cabernet scores are right on the mark this decade: 69, 72 and 87 for the 2001-2003 vintages.

You think they fixed their problems for the great 2004 vintage? Think again...

Here are the results of a recent high end cabernet blind tasting by a well respected Manhattan group that had RP in attendance. That's 1st, 2nd, and 3rd place votes and total points...:

04 Schrader Beckstoffer To Kalon Vineyard - 18 - 14 - 7 - 89 total points

02 Bryant Family - 15 - 10 - 15 - 80 total points

04 Caymus Special Selections - 9 - 17 - 10 - 71 total points

02 Shafer Hillside Select - 11 - 9 - 11 - 59 total points

05 Jonata Cabernet Franc - 6 - 9 - 8 - 44 total points

03 Araujo - 7 firsts, 6 seconds, 9 thirds - 42 total points

03 Hobbs Beckstoffer To Kalon Vineyard - 8 - 4 - 7 - 39 total points

03 Quilceda Creek - 5 - 4 - 10 - 33 total points

03 Harlan Estate - 6 - 6 - 1 - 31 total points

03 Sloan - 4 - 5 - 7 - 29 total points

03 Colgin Tychson Hill - 5 - 5 - 3 - 28 total points

04 Screaming Eagle - 5 - 4 - 5 - 28 total points

04 L'Aventure Estate - 2 - 4 - 3 - 17 total points

03 Verite La Joie - 1 - 4 - 1 - 12 total points

04 Chateau Montelena - 0 - 1 - 2 - 4 total points

Good luck to you Mr. New Owner
Julie Brosterman
June 15, 2008 11:25am ET
Beaten by a wine from Paso Robles! For shame.
Chris Haag
vancouver, bc —  June 15, 2008 1:08pm ET
We visited the winery once. The wine was crap, the grounds and estate beautiful.
Timothy Eagan
Boca Raton, FL —  June 15, 2008 3:00pm ET
Worked at the Vineyard in the Early 90's in the Tasting Room, was a great steping stone to my career as a Sommelier, but have tried there wines lately, and definitely not what it used to be. Maybe a new owner could help and bring them around.
Roy Piper
June 15, 2008 4:00pm ET
There is something I learned from my finance days....when the long-timers are selling out at high prices and new people are entering in large numbers, that industry will deliver sub-average economic returns for some time.
John Anderson
London —  June 15, 2008 6:38pm ET
Despite all the negative comments around their wines of late, this is one of the classic vineyards in the world. And the Barret's amongst the best winemakers ever. I salivate over the dream of winning the lotto and buying Montelena. I can hardly imagine a winery I'd rather own in the US. It is a fabulous property that under the right ownership can bring back the glory that it once had. For the guy that asked about sales vs revenue. They are the same in the US as well. I assume James was using revenue instead of income (ie, sales or revenue less expenses). Sounds like he needs to stick to reviewing wine and stay out of the business end.
Richard Hirth
Michigan —  June 16, 2008 8:58am ET
I think James' sales vs. revenues comparison was simply volume (bottles) vs. $ (price x bottles)
Dohanic David
D of C —  June 19, 2008 10:19am ET
No matter how much the Montelena wines have fallen off from their highly respected "blue chip" perch that was attained because of not just the Paris comp. but also due to their track record of three plus decades of some of the longest-living cabs from California, Mr. Laube is still right on target in his assessment that this sale will indubitably be both a historic event and a barometer for the future of first tier Napa winery sales.And Mr. Wilen, the Montelena's poor showing in your tasting doesn't surprise me at all considering that it alone of all these wines (the Caymus being the possible other exception) is truly an "old-school" cabernet that will age majestically. Try your Bryant Family and your Schrader again in ten years and see if they still finish as well against a Montelena that's just starting to show its true colors.
John Wilen
Texas —  June 20, 2008 8:55am ET
Yeah, yeah, yeah. I know. Dunn, Montelena, Mondavi Reserve, Heitz Marthas, Ridge Montebello. These must be MANLY cabs because you have to wait 10, no 20 years for them to hit the sweet spot. Forget it. Too risky. I will let somebody else roll the dice and buy over-rated Montelena, tie up their capital for 2 decades, pay to refrigerate it for 20 years, and then be disappointed when they finally pull out the crumbling cork to find that the wine has faded, the fruit is gone, and/or TCA taint has blemished their prized possession. I have seen it happen too many times. The saddest part is watching the guy try to convince his wife or drinking buddies that the juice is really good. Hey, it must be..... RP tattooed it with 94 points years ago.

I will take my favorites from Celia Masycek, Bob Foley, Mark Herold, Karen Culler, Paul Hobbs and Heidi Barrett --- and drink them in the first 2-4 years. Infanticide? Hardly.... Having had close to 1000 California reds over the last 7 vintages, my palate tells me if you love California wines, enjoy them while they are young. Yes, I will drink my Schrader now, thank you. And my friends who share it with me will not need to be told it is a great wine. They will know on the first sip.
John Skupny
St. Helena —  June 23, 2008 12:40am ET
In my humble opinion and having to be fortunate to have tasting experience with Ch. Montelena wines back to their first wines, they are a blue chip producer with an estate vineyard that supports their efforts. Wine is made by people and the people behind this winery have always been first class.I am amused by the over reactive opinions of John Willens. I am so glad to have had the opportunity to have seen his recent tasting scores with none other than 'RP' in attendance. I'm impressed - wine by numbers and names!
Vic Motto
Napa Valley —  July 23, 2008 10:34am ET
Cos d'Estournel recognizes that Montelena may be the most important wine estate in America and one of the best in the world. Sorry Jim, but you're alone on the TCA issue, and on the condition of the cellar, which is now pristine. You did write an excellent retrospective tasting on 20 years of Montelena Estate and got it completely right. RP agrees, having rated Montelena higher than 4 of the 5 first growths on average over 30 vintages - with rising ratings. This deal is clear recognition by one of the top producers (Cos) of the quality levels attained by the best of Napa. For full disclosure, we advised the Barrett family on the transaction, and the level of interest in the offering exceeded anything we've yet seen in U.S. wine. This is a landmark event for American wine and for the industry.

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