Diageo Wins Bid for Chalone

A British company has struck a deal to buy Napa Valley’s Chalone Wine Group Ltd. for $186 million, according to people familiar with the negotiations.

London-based Diageo, which owns the Smirnoff vodka and Guinness beer brands, became the winning bidder after a group that included Constellation Brands Inc., the world’s largest wine company, let a midnight Friday deadline expire without submitting a new offer, the sources said.

Chalone had agreed in early November to be acquired by Constellation, Domaines Barons de Rothschild and the Huneeus family, which owns the Quintessa winery in Napa Valley, for $11.75 a share in a transaction valued at $158 million.

A clause in the contract allowed Chalone to accept a better offer -- and Diageo said last week it would pay $13.75 a share and assume $65 million in debt. Diageo would have to pay the Rothschild and Constellation group a breakup fee of $2.48 million.

Constellation, which would have financed most of its group’s purchase, decided not to put any more money into the deal, according to the sources. The Fairport, N.Y.-based company, which has had access to Chalone’s confidential financial data, didn’t believe the higher price was justified, the sources said.

Last month Constellation agreed to buy Robert Mondavi Corp. for $1.03 billion. That acquisition, set to close Wednesday, made Chalone less important to Constellation’s strategy to become a player in the high-end wine business, analysts said.

With Diageo the winner, Rothschild is in for a big payday. It owns 49% of Chalone, a stake that would be worth about $90 million under the deal.

Other shareholders also are set to collect a large premium: $13.75 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 owns a number of well-regarded luxury wine brands, including Chalone, Acacia and Provenance. Adding those labels to Diageo’s portfolio would give the British company clout to compete with Constellation and others in the upscale wine business, analysts said last week, when The Times reported that Diageo had jumped into the bidding.

Diageo, which owns Beaulieu Vineyard and Sterling Vineyards in Napa Valley, earned about $1.4 billion on $8.9 billion in sales last year. Chalone earned $1.4 million on revenue of $67.4 million.