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Constellation Reaches Deal to Buy Mondavi

Times Staff Writer

Robert Mondavi Corp. on Wednesday accepted a sweetened $1.03-billion takeover offer from Constellation Brands Inc., the world’s largest wine company.

The offer of $56.50 in cash for each of Mondavi’s Class A shares represents a 46% premium over the share price Oct. 11, the day before Constellation made its first proposal to Mondavi’s board of directors. The total value of the deal would be $1.36 billion, including the assumption of $325 million of debt.

The Mondavi family -- which has voting control of the company through a special Class B issue of stock -- supports the buyout, the vintner said. Family members would get $65.82 a share for their Class B holdings.

In accepting the Constellation bid, Mondavi shelved a restructuring plan to reinvent itself as a purveyor of inexpensive wine; to do so, it would have sold its landmark Robert Mondavi Winery in Oakville, Calif., and other luxury brands.

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In an interview, Constellation Chief Executive Richard Sands called the deal “historic.” He praised Mondavi, which is generally considered the best-known brand in California’s $14-billion wine industry, and said Constellation’s global reach would allow the Napa-based company to expand into many new markets.

Analyst Tim Ramey with D.A. Davidson & Co. in Lake Oswego, Ore., agreed: “This is a great price for Mondavi shareholders,” he said. “Constellation will be able to do a lot with the Mondavi brands in its distribution system.”

The Constellation-Mondavi accord ended a boardroom drama that pitted members of the founding Mondavi family against management and led to the resignation of several family members from company posts.

R. Michael Mondavi quit as co-vice chairman and a board member this year because he disagreed with the divestiture plan. His brother Timothy Mondavi, who is on the board but gave up his post as “winegrower” and co-vice chairman, and their sister Marcia Borger, who remains on the board, also voted against the plan.

Founder Robert Mondavi will continue as an ambassador for the company, Sands said.

The deal was announced after stock markets closed. Constellation shares rose 30 cents to $41.55 on the New York Stock Exchange. Mondavi shares rose 50 cents to $54.75 on Nasdaq.

Ramey and other analysts said they were surprised at the speed with which the deal was forged.

The courtship began Oct. 12, when Constellation made an unsolicited offer of $970-million, or $53 a share. Mondavi executives were originally cool to the proposal, saying they would consider it with their own plan to restructure the company and sell the high-end properties.

As recently as a week ago, Mondavi Chairman Ted Hall said during a morning conference call with investors that little would happen before the Nov. 30 annual shareholders meeting.

But by that evening, Hall was meeting with Sands and other Constellation executives in New York. Hall agreed during that meeting to let them come to Napa on Saturday so they could conduct a due-diligence review of Mondavi’s operations.

On Monday, the two sides were deep in negotiations in Napa, reaching the outline of an agreement Tuesday and sealing the deal Wednesday morning.

In a statement, Hall said the Constellation offer was in the best interests of Mondavi shareholders. He and other Mondavi executives didn’t return calls.

The transaction requires shareholder and regulatory approval but could close as early as December, Sands said.

Although the asset sale devised by Hall’s management team now won’t take place, Sands didn’t rule out selling Mondavi’s smaller high-end wineries or a portion of its vast vineyard acreage, including land in Napa Valley.

“The primary asset that they were divesting was the Robert Mondavi Winery, and we are not going to do that,” he said.

Constellation also would like to keep Mondavi’s 50% interest in Opus One, the luxury winemaker owned in partnership with the French wine house Baron Philippe de Rothschild. But Rothschild has the right to buy Mondavi out if the company changes hands.

The proposed Constellation-Mondavi combination would create a massive international wine business with holdings in Australia, Europe, South America and North America. Together, it would control about 18% of California wine shipments, second only to industry leader E. & J. Gallo Winery, which has about 27% of the market.

This is the second Napa acquisition that Constellation has been part of this week. The Fairport, N.Y., company would be the largest shareholder in a venture that would acquire Chalone Wine Group Ltd., which owns several Napa wineries.

The Mondavi and Chalone combinations would make Constellation the dominant player in Napa Valley, said Robert Nicholson, an investment banker who heads International Wine Associates in Healdsburg, Calif.

“It is quickly being understood in the global wine industry that he who owns the vineyard land controls the premium wine business,” he said, and this purchase would bring Constellation some of the most storied vineyards in the Napa Valley.

Constellation, which earned $220 million on sales of $3.5 billion last year, owns the Almaden, Hardys, Arbor Mist, Estancia, Ravenswood and Simi labels. It also imports a variety of beers from Mexico and Asia.

Mondavi, which posted a profit of $26 million on $468 million in sales last year, sells its namesake wine as well as Woodbridge, Arrowood, Byron and Opus One.

The purchase could trigger other acquisitions in California’s wine industry, said Tom Pirko, president of Santa Barbara-based beverage industry consulting firm Bevmark.

Under this scenario, he said, large international companies such as Diageo, Allied Domecq, Pernod Ricard and Constellation could go after mid-size, family owned California wine companies such as Kendall-Jackson Wine Estates, Charles Shaw maker Bronco Wine Co. and jug wine specialist Wine Group.

“The alcoholic beverage industry has been consolidating globally,” Pirko said, “and there is no reason why California’s wine industry would be exempt.”


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