Nestle to Sell Its California Wine Holdings to Group of Private Investors

In the most valuable deal in the history of the U.S. wine industry, Nestle is set to announce today that it is selling its extensive and prestigious California wine holdings, including Beringer Vineyards and Chateau Souverain, to private investors, industry sources said Tuesday.

Texas Pacific Group, an investment partnership with $720 million in capital and offices in San Francisco and Ft. Worth, is paying an estimated $350 million for Nestle’s Wine World Inc. consortium, which also includes 6,000 acres of coastal vineyards and other labels such as Napa Ridge and Meridian. The company bottles about 4.5 million cases of wine a year.

The principals of Texas Pacific include David Bonderman and James Coulter, both former associates of the Bass brothers in Ft. Worth. Another is William Price, a former senior executive with GE Capital Corp. Their firm has holdings in, among many other companies, Continental and America West airlines.

Nestle, the Swiss-based owner of such well-known brands as Alpo, Carnation, Libby, Perrier, Toll House, Hills Bros. and MJB, had been seeking to end its 24-year venture in the wine business to focus on products with a more global identity.

The deal “makes sense all around,” said Jim Laube, who writes for Wine Spectator, a widely read trade magazine. “It fits in with Nestle’s desire to focus on more global brands, and [the new owners] are buying one of the jewels of the California wine industry.”

Nestle assembled Wine World over the course of 2 1/2 decades. Its initial foray into the industry was in 1971 when it bought the Beringer property from the heirs of brothers Frederick and Jacob Beringer, German immigrants who founded the business in 1876.

Other purchases included Chateau Souverain; the historic Italian Swiss Colony property in Asti, Calif., where Wine World bottles its value-priced Napa Ridge wines; Meridian in Paso Robles, and a variety of smaller vineyards and brands.

Particularly notable is the Beringer line in St. Helena, which has become a symbol of high quality, success and stability. The winery’s private reserve Cabernet Sauvignon annually wins top marks from critics and retailers. The 1986 vintage was Wine Spectator’s Wine of the Year in 1990. The winery’s Rhine House tasting room is housed on California 29 in the Napa Valley in a classic Victorian with peaked roofs and stained-glass windows.

“They [Wine World] have been leaders and have shown the way to many,” said Vic Motto, a principal with Motto, Kryla & Fisher, a wine industry consulting firm. “They have provided the consumer with value at every price.”

With its purchase, Texas Pacific Group, a diversified firm with interests in airlines, health care, food and entertainment, is taking control of several premier lines and, perhaps more important in this period of growing demand for premium wines, some prime vineyards in Napa Valley, Sonoma County, Santa Barbara and San Luis Obispo.

The deal was negotiated by Silverado Partners, a Napa Valley group that includes Mike Moone, a former Beringer president who is now an owner of Napa Valley Kitchens, a group that sells products such as fancy mustards, oils and flavored vinegars. Moone will reportedly serve as a liaison with his successor at Beringer, Walter Klenz, who is expected to remain, as is the rest of the management team.

Wine World attracted a hefty dose of investor interest in the time it has been for sale. Bidders included Canandaigua, a New York-based producer of Paul Masson, Inglenook and other labels, and Brown-Forman Corp., the producer of Jack Daniel’s Tennessee Whiskey, which in 1992 bought Fetzer Vineyards in Mendocino County.

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California Wines

U.S. market share for wine produced in California:

Gallo: 36%

Canandaigua: 17%

Wine Group (Franzia): 9%

Sebastiani: 4

Heublein: 3%

Sutter Home: 3%

Wine World (Nestle): 3%

Mondavi: 3%

Other: 22%

Source: Paul Gillette, wine industry consultant