Diageo Makes Bid for Chalone That Tops Rothschild’s
The British owner of Smirnoff vodka and Guinness beer has jumped into the competition for Chalone Wine Group Ltd., a person familiar with the proposal said.
Diageo, which also owns Beaulieu Vineyard and Sterling Vineyards in Napa Valley, bid $13.75 a share, or about $186 million. That tops by nearly 18% the offer from Domaines Barons de Rothschild of France, Constellation Brands Inc., the world’s largest wine company, and the Huneeus family, owner of the Quintessa winery.
Napa, Calif.-based Chalone confirmed Monday that it had received the higher bid, though it identified the new suitor only as “a company with significant wine operations.”
A Diageo spokesman declined to comment, citing a company policy against discussing potential mergers and acquisitions.
Chalone agreed in early November to be acquired by the Rothschild-Constellation-Huneeus venture for $11.75 a share in a transaction valued at $158 million. But a clause in that contract allows Chalone to accept a bigger offer if the Rothschild group fails to match it.
Rothschild and its partners have until 11:59 p.m. Friday to do so. If they don’t, Rothschild -- Chalone’s largest shareholder, with a 49% stake -- must vote its stock in favor of the Diageo deal. A person familiar with Constellation’s strategy said the Fairport N.Y.-based company, the Rothschild venture’s main financial backer, wouldn’t put any more money on the table.
A Diageo bid for Chalone should come as no surprise, analysts said, considering that Constellation agreed last month to buy Robert Mondavi Corp. for $1.03 billion. The analysts said that with Mondavi in its portfolio, Constellation, which is moving into the high end of the wine business, might not be looking at Chalone as an essential purchase.
Although not as famous as Mondavi, Chalone owns a number of well-regarded luxury wine brands, including Chalone, Acacia and Provenance.
Adding Chalone’s brands to Diageo’s portfolio would give the British company clout to compete with Constellation in the upscale wine business, said Robert Nicholson, an investment banker with International Wine Associates in Healdsburg, Calif.
Based in London, Diageo earned about $1.4 billion on $8.9 billion in sales last year.
Chalone earned $1.4 million on revenue of $67.4 million. It would be just a tiny part of Diageo’s international beverage business.
Nicholson said a Diageo buyout would be a friendly one for Chalone’s senior management, including Chief Executive Thomas Selfridge, who previously served as both the president and winemaker at Beaulieu Vineyard.
With Chalone, Rothschild would create a luxury wine company in its venture with Constellation and the Huneeus family, selling the Chalone brands, Quintessa wines and a high-end Napa Cabernet Sauvignon under the Rothschild label. Constellation would own 38% of the business; the Huneeus family, 33%; and Rothschild, 29%. Agustin F. Huneeus Jr. would be named CEO.
Huneeus said he was still interested in the Chalone deal. “We have been at this for almost a year,” he said. “I don’t think we are going to go away.”
He added that Rothschild’s ownership of almost half of Chalone’s shares provided the partners an advantage over other bidders by reducing the amount of cash they must come up with to match competing offers.
Both offers say shareholders would be allowed to hold onto unique rights allowing them to purchase Chalone wine at a discount. And both include the assumption of $65 million in Chalone debt.
Regardless of who lands Chalone, shareholders are set to collect a large premium. The $13.75 price represents a 60% gain over where the stock traded May 14, just before the Rothschild group’s original bid of $9.25 became public.
Chalone shares continued to rise Monday, gaining $2.06 to $13.85 on Nasdaq, reflecting the anticipation by some investors of another round of bidding. Diageo shares rose 92 cents to $57.48 on the New York Stock Exchange.
