Deals Add to Signs of Winery Revival
Golden State Vintners Inc. said Monday that it planned to sell to a management group led by Chief Executive Jeffrey O’Neill for $96 million in the latest transaction to signal that California’s $14-billion wine industry is rebounding.
In the last two weeks, for example, two small Sonoma County wineries were sold to investment teams: Everett Ridge Vineyard & Winery and Topolos Winery for $2.5 million and $3.5 million, respectively. And on Monday, the U.S. arm of French vintner Boisset announced that it had purchased the Seven Peaks brand in December from Australia’s Southcorp Ltd., for an undisclosed sum.
The Golden State Vintners deal -- which at $6.85 a share represents a 7% premium over Friday’s closing, when the sale was priced -- would allow O’Neill to take the Napa-based firm private. On Monday, shares of the private-label winemaker rose 35 cents to $6.76 on Nasdaq. The stock has more than tripled in the last year.
To Robert Nicholson, an investment banker with International Wine Associates in Healdsburg, Calif., the acquisition activity suggests that people in the wine business “are starting to position themselves for a recovery” after a three-year slump caused by a grape glut, tough competition from inexpensive imports and the weak economy.
Among those looking ahead is Kendall-Jackson Wine Estates. The Santa Rosa-based winemaker figures that by 2004 it will be able to snatch up parcels and other assets at reasonable prices to add to its portfolio, spokesman George Rose said.
Just last month, the privately held company bought the 180-acre Piner Ranch vineyard in Sonoma County for $10 million.
“You are going to see more of this type of action,” Rose said. “There are a number of vineyards and wineries for sale, and this is a great opportunity for the Kendall-Jackson organization. We predicted this would happen.”
The picture is brightening for California winemakers for a number of reasons. Growers pulled at least 50,000 acres of vines out of the ground last year, imports became more expensive as the dollar weakened and a smaller harvest last fall helped balance out the grape supply.
Nonetheless, the industry is “not out of the woods yet,” Nicholson cautioned. Many wineries will be forced to continue cutting prices to move their inventories.
In fact, discounting was a culprit in the lower earnings reported Monday by Napa-based Chalone Wine Group, which makes the Echelon, Acacia and Chalone brands.
“Our bottom line is impacted by the price pressure that everyone in the industry feels right now,” said Tom Selfridge, Chalone’s CEO. “While we are seeing signs that the wine glut is drying up and the economy seems to be on the rebound, we don’t anticipate these effects being felt until 2005 or 2006.”
Chalone said net income fell 29% to $490,000, or 4 cents a share, from $692,000, or 6 cents, in the same period a year earlier. Quarterly revenue rose 8.7% to $22.6 million.
For the year, net income fell to $1.4 million, or 11 cents a share, from $2.3 million, or 19 cents, in the previous year. Revenue was flat at $69.4 million.
After the earnings report, Chalone’s shares dipped 22 cents to $9 on Nasdaq.
The Golden State Vintners sale is expected to close by the end of June, the firm said, adding that SBIC Partners, which controls about 62% of its shares, agreed to support the deal.
The company had a profit of $6.1 million on revenue of $52 million in the first six months of its fiscal year. It owns 4,270 acres of vineyards, making wine at four facilities in the San Joaquin Valley and Monterey County under private labels for other wineries, such as those that produce Beringer and Sutter Home, as well as for retailers including Safeway Inc. It also leases a winery and bottling plant in Napa.
