2 California Wine Makers in Merger Talks
Two of California’s largest vintners, Kendall-Jackson and Beringer Wine Estates, are discussing a merger that could lead to the creation of the country’s largest premium-wine company, officials confirmed Tuesday.
Although a Kendall-Jackson Wine Estates spokesman stresses that the two firms aren’t close to a deal and are “exploring several options,” sources say the winemakers have been talking for several months in an effort to expand their international presence and gain wider distribution for their brands here in the States.
If a deal goes forward, publicly traded Beringer Wine Estates Holdings Inc., the larger of the two, would gain the size and marketing clout needed to boost its stock price, which has stagnated despite increasing profitability and rapidly growing sales of its more expensive Founders Estates wines.
An acquisition would allow Santa Rosa-based Kendall-Jackson to tap into the public market without conducting a public offering, a move Chief Executive Lew Platt has been considering since he was hired in November.
“Beringer would become an 800-pound gorilla just like that,” said food and wine industry analyst Bonnie Kramer Tonneson of Chase H&Q; in San Francisco. The combined company would have a market capitalization of well more than $2 billion, which would be unprecedented for a wine company, she said.
Consolidation has accelerated in the California wine industry in the last couple of years, as vineyard property has become increasingly scarce and the market much more competitive. In buying Kendall-Jackson, Napa-based Beringer would not only get its top-selling brands, but also access to thousands of acres of vineyard property across the state and in other locations around the globe, such as Italy, Chile and Argentina.
“Beringer stock has not performed,” Napa Valley wine consultant Vic Motto said. “They wanted to be bigger, and what a tremendous acquisition this would be.”
By having a wider range of hot labels, including Kendall-Jackson’s coveted high-end varietals, Beringer would be able to persuade distributors to push more of its entire line to supermarkets and restaurants, Tonneson said.
Kendall-Jackson had revenue of $309 million last year on sales of 3 million cases of wine, excluding its boutique labels such as La Crema and Pepi.
Just as the country’s latest round of food mergers is forcing further consolidation in that industry, mega-mergers such as this could spark other marriages in the wine business.
Beringer and Kendall-Jackson had combined sales of $636 million last year, which would place the entity behind E. & J. Gallo Winery, Wine Group Inc. and Canandaigua Brands Inc. But in terms of premium brands, or varietals costing more than $7 a bottle, it would be the market leader, said Jon Fredrikson, partner in Gomberg, Fredrikson & Associates, a wine industry research firm.
Kendall-Jackson has the hottest-selling Chardonnay in supermarkets, and Beringer has the largest-selling single wine in its less expansive White Zinfandel, Fredrikson said.
However, some analysts said the deal is far from a sure thing.
Just last month, Australia’s largest wine producer, Southcorp Wines, was rumored to be close to buying Kendall-Jackson. And company officials insist that they are still talking with other big players in the wine industry, such as Robert Mondavi Corp. Mondavi officials said they know of no such discussions.
The speculation about Kendall-Jackson’s expansion plans started last year, when Platt, the former chief of Hewlett-Packard Co., was hired. At that time, he mentioned an initial public offering as one way of providing the capital necessary to fulfill the company’s global aspirations.
Rumors of a deal have pushed Beringer’s stock up in the last week. It edged up 6 cents to close Tuesday at $39.31 on Nasdaq.
