Mondavi Gets $970-Million Offer
The world’s biggest wine company wants to buy one of California’s most illustrious vintners.
Constellation Brands Inc. said Tuesday that it had made a $970-million cash offer for Robert Mondavi Corp. Including assumption of debt, the transaction would be worth $1.3 billion.
Such a deal would place the company founded by California wine patriarch Robert Mondavi into the hands of an international corporate giant whose products include Manischewitz kosher wine and Corona beer.
And it would mark a changing of the guard in Napa Valley, the region that helped create California’s $14-billion wine industry.
“Mondavi is a big part of the fabric that makes up this community,” said Andy Beckstoffer, the area’s largest independent wine grape grower.
Constellation is offering holders of Mondavi’s Class A stock $53 a share. The Mondavi family, which owns the company’s Class B voting shares, would get $61.75 a share. The extra amount for family members’ shares preserves the benefit they would receive under a previously announced plan to convert their B shares into A shares. That plan is set for a shareholder vote at the Nov. 30 annual meeting.
Constellation Chief Executive Richard Sands said the offer represented a 37% premium over the closing market price of Mondavi’s Class A shares on Oct. 11, the day before the confidential proposal was made.
Analysts said Constellation’s aggressive offer was designed to preempt other rivals from starting a bidding war and to encourage Mondavi’s board to delay the planned sale of its premium wine brands and vineyards. Sands said the sale of any luxury assets would diminish the value of the entire company.
Mondavi disclosed late Monday that it had received an unsolicited offer but did not name the suitor. Ted Hall, Mondavi’s chairman, said the company would consider the offer along with its restructuring plan and choose the path that would reap “the most shareholder value.” Mondavi had no further comment Tuesday.
News of the bid sent Constellation shares tumbling $3.25, or 8.2%, to $36.25 on the New York Stock Exchange. Mondavi’s class A shares, however, soared $12.01, or 30%, to $51.88 on Nasdaq, setting a 52-week high.
Despite its role as one of America’s best-regarded winemakers, Mondavi has gone through a series of strategic gyrations over the last year, caused in part by lackluster financial performance and the profit demands of Wall Street.
The various initiatives sparked a boardroom battle that culminated last month with the company’s announced plan to sell off the famous Robert Mondavi winery, its Napa vineyards and other luxury wine assets to concentrate on the lower end of the wine business.
All three of Robert Mondavi’s children voted against the plan. His son Michael was forced off the board and out of the company after the boardroom fight. Tim Mondavi, who gave up his post as vice chairman and wine grower, and sister Marcia Borger remain on the board.
Both the restructuring plan and the fighting caught Fairport, N.Y.-based Constellation’s attention, Sands said, prompting it to make its offer. “You don’t cut the baby in half to solve a problem between a husband and wife,” he said.
Timothy Ramey, an analyst at D.A. Davidson & Co., said the Constellation bid “trumps” Mondavi’s planned restructuring. He said there were “enormous synergies” to be gained from the business combination. Constellation would be able to take advantage of Mondavi’s giant Woodbridge winery near Lodi, which has plenty of room to expand production and is known as a low-cost facility.
But analyst Jonathan Feeney of Wachovia Securities cautioned that it might be a better deal for Mondavi shareholders than Constellation’s owners. In a report to investors, Feeney said intense competition had made the wine industry an uncertain business. He noted that both Constellation and Mondavi had suffered from falling profit margins in recent years.
“The bid is aggressive, and Constellation will have to prove it can turn around the Mondavi business if the deal goes through,” Feeney said.
Constellation, however, has a good track record with mergers, said wine industry consultant Jon Fredrikson. After buying Blackstone Wines for $140 million three years ago, he noted, it doubled sales to 1.3 million cases. It also has completed large business combinations, paying $1.1 billion for Australia’s BRL Hardy to become the world’s largest wine company last year.
Although the two companies have been in contact for the last week, Mondavi waited until Monday to disclose that it had received a takeover bid. Sands said Constellation decided to reveal it was the bidder and terms of the deal to short-circuit Wall Street speculation.
Sands said he was perplexed by Hall’s apparently cool reception to the offer. He noted that in a meeting with analysts, Mondavi officials had said the restructuring could eventually create a company with a market value of $749 million to $929 million.
“We are offering more than that in cash today,” Sands said in a conference call Tuesday, adding that he hoped the public disclosure of the bid would create a groundswell of shareholder support that forces Mondavi’s board to negotiate a merger.
A combination of the two companies would create a massive international wine business with holdings in Australia, Europe, South America and North America. Together, they would control about 18% of California wine shipments, second only to industry leader E. & J. Gallo Winery, which has about 27% of the market, Fredrikson said.
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 company was born after a fistfight between Robert Mondavi and his brother Peter nearly 40 years ago. Robert was general manager of the family’s Charles Krug Winery, but he chaffed at the criticism Peter heaped on his management style and his plans for the company. During one argument, Robert struck Peter.
Their mother, Rosa, didn’t like it. Her husband, Cesare, was dead and she needed the boys to cooperate. Her punishment for Robert was a six-month leave of absence with pay.
Robert never came back. He borrowed money to buy choice vineyard property in Oakville and opened what became Robert Mondavi Corp. in 1966.
Over the next three decades Robert Mondavi became the father of fine wine in America, said Vic Motto, chief executive of Global Wine Partners in St. Helena, Calif. Mondavi invested in planting the best vineyards. He pioneered global deals such as part ownership of the Ornellaia winery in Tuscany, Italy, and a 50% stake in the ultra-premium winery Opus One with the French wine house of Baron Philippe de Rothschild.
“If you look at Napa Valley today you see what was inspired by Robert Mondavi,” Motto said.
There are almost 300 vintners in the valley today, compared with about a dozen when Robert Mondavi opened the iconic white stucco tower and arch winery on Highway 29.
“It is these small wineries that are the innovators and the drivers of the culture of fine wine in America today,” Motto said.
(BEGIN TEXT OF INFOBOX)
1966: Robert G. Mondavi opens the Robert Mondavi Winery in Oakville, Calif., after splitting with his family and leaving their Charles Krug Winery.
1967: The company sells its first wine, Chenin Blanc, at $2 a bottle.
1979: Mondavi purchases Woodbridge Winery.
1984: Opus One, a wine produced by a joint venture with a French vintner, debuts.
1985: Mondavi buys Vichon Winery.
1990: Mondavi buys Byron Vineyard & Winery in Santa Maria, Calif.
1993: Robert Mondavi Corp. goes public.
1994: R. Michael Mondavi, son of the founder, is appointed president and chief executive.
1995: La Famiglia wines are introduced.
2000: Mondavi purchases Arrowood Vineyards & Winery in Sonoma County.
2001: Robert Mondavi becomes chairman emeritus, Michael Mondavi becomes chairman, and Gregory Evans is named CEO.
2003: Competition from cheap wines such as Charles Shaw erode Mondavi’s profit, which drops 90% in the fourth quarter.
January: Michael Mondavi steps down as chairman and becomes vice chairman. Ted Hall becomes chairman.
Aug. 20: The company announces a recapitalization plan that would reduce the Mondavi family’s share of voting rights to 40% from 85%.
Sept. 14: The company announces that its luxury wine business is for sale and that it plans to focus on its less expensive brands.
Oct. 4: Michael Mondavi leaves the board.
Oct. 7: Tim Mondavi, another son of Robert Mondavi, announces he will step down as vice chairman.
Tuesday: Constellation Brands announces a $970-million takeover bid for Robert Mondavi Corp.
Sources: Robert Mondavi Corp.; Times research