Wine Family Has Stake With Japanese Owners

Until Kirin Brewery Co. came along, foreign firms purchasing American wineries have done so lock, stock and barrels.

Earlier this year, when the Raymond Vineyard Winery announced completion of the deal in which Kirin, the brewing giant, became the owner of this Napa Valley jewel, a line in the press announcement noted that Raymond “will retain an ownership interest in the winery and will continue to operate and manage the business.”

Other Japanese buyers of wineries have left Americans in charge. When Otsuka Pharmaceutical bought Ridge Vineyards in Cupertino in 1986, it left Paul Draper and the late David Benion to run it. Sanraku and Sapporo left intact the staffs at Markham and St. Clement, respectively, two other Napa Valley wineries they acquired.

But in previous cases, the wineries were sold 100%--all land, buildings, inventory, and stock. This makes the Raymond deal unusual.

“We are committed here (by contract) for at least the next three years,” said Roy Raymond Jr., president of the winery and the man who handles viticultural and marketing.

“And if things go well, and we expect them to, there are plans to stay on beyond five years,” said Walt Raymond, Roy’s brother and the wine maker. He declined to give specifics of the deal, but a source close to the winery estimated that the family retained about 15% of the stock in the winery.

The key to retaining a portion of the winery, according to both sides in the deal, was the incentive factor. Kirin executives knew they needed to keep the Raymonds around to operate the winery and maintain the same high quality of wines produced since the winery was founded in 1974. And the Raymonds were prepared to stay.

“Where you have very talented and long-term management that you want to keep intact, structuring a deal this way gives them (the Raymonds) an inducement,” said Joel Marcus, the attorney who worked with Kirin on arranging the deal. “This way, the Raymonds have a continuing stake in the enterprise.

“This accomplished several things,” added Marcus, a partner in the law firm Pettit & Martin in Los Angeles. “It keeps the founding managers as your business partners, and I think that assures stronger management. And it gives them (the Raymonds) a great incentive to stay active in the business.”

Roy Ramond added, “The way the deal is structured, our stock (in the company) will appreciate in value based on increasing (case) sales and profits.”

Walt Raymond said Kirin told the family the acquisition was “for investment purposes only. They take the long-term view, and they look at the Napa Valley as a quality region and Raymond as a quality property.”

Marcus pointed out that “some of the past deals (in which Japanese companies have bought American businesses) haven’t been as creative as they might have been, and I think the reason is that they forget the essential ingredient of operations. But from the perspective of Kirin, I think you may see more of these kind of deals from now on from companies that see the long-term potential of inducements to the managers.”

The first and to date the largest Japanese purchase of a California winery was in 1984 when Suntory Ltd. bought Chateau St. Jean in Sonoma County for an estimated $40 million. Although management of that company initially didn’t change, none of the former owners of Chateau St. Jean retained any percentage in the company.

In the intervening five years, however, most of the former executives of Chateau St. Jean have left, including the president, the national sales director and the head of viticulture. The key remaining employee is Richard Arrowood, the wine maker. Many of those who left say they couldn’t adapt to the Japanese corporate style.

However, the Raymonds say that under their agreement with Kirin, family members will call all the shots. “They (Kirin) gave us every assurance that we will be the managing people--we will be the ones making all the decisions,” said Walt.

When it was first reported last October that Kirin and the Raymonds had struck a deal, estimated by sources at about $18 million, it surprised many in the Napa Valley who felt that Raymond was the least likely winery to sell. Case production had risen in the past few years by about 20% annually and by 1989 was projected at near 140,000 cases.

And the company was not hurting financially. Its wines were highly regarded in the marketplace, both at restaurant and retail levels, and it was competing successfully in four different price levels with its chardonnays, which represent 57% of its production.

“We didn’t have a winery for sale,” Roy said. He said the property had never been listed with an agent, and the family wasn’t even thinking of taking offers.

“But Kirin had looked around, looking to buy a Napa Valley winery, and they had found a lot of them that were for sale and looked into them and found things that were wrong,” Roy added. “Then they looked at us and after a while made us an offer.”

It apparently wasn’t the only offer. Insiders say Hiram Walker, the British-based drinks company that recently paid a reported $38 million to acquire Clos du Bois winery in Sonoma County, also bid for Raymond. The Raymonds declined to discuss any other offers that may have been made.