After a week of speculation surrounding a "mystery bidder" which had outbidded Lafite Rothschild, Diageo today announced that it will buy Chalone for around $260 million.
The acquisition will give Diageo a portfolio of premium Californian wines putting its US operated Chateau & Estate Wines division on a platform to rival E&J Gallo, Allied Domecq and Constellation Brands.
Chalone was to become part of a new wine partnership project between Lafite Rothschild, Constellation Brands and the Quintessa Winery in Napa. Constellation was to pay $52 million in cash and contribute its 280-acre Oakville vineyard, while the Huneeus family would contribute its Quintessa Winery, valued at $86 million.
Lafite Rothschild already owned 46 per cent of Chalone and was to contribute to securing the remaining 54 per cent. Initially proposing $9.25 a share in May, it increased the offer to $11.75 in November. This was accepted by Chalone on the provision that it could continue receiving offers.But, Diageo beat the November offer by tendering $13.75 per share. Lafite Rothschild had until Friday 17th Dec to decide whether to match the offer.
With the Mondavi Corporation, another Napa based premium winemaking group, recently added to its portfolio, it was unlikely that Constellation would be keen to significantly raise its price for Chalone. Rothschild, on the other hand, has been involved in the growth of Chalone for many years, and may be slightly more disappointed to have lost out. The company was today not willing to comment on why it did not meet the bid.
Diageo are to buy back the 46 per cent from Lafite Rothschild, giving it full ownership of Chalone. It will also have to pay a termination fee of $2.5 million.
The current weakness of the dollar has encouraged American consumers to buy Californian rather than European wine, making a collection of famous Napa estates a desirable asset. The Chalone Wine Company owns 12 Californian vineyards including upmarket brands Chalone, Acacia and Provenance. It produces about 700,000 cases a year.
Diageo, the world's number one spirits group, has up until now been quieter than its rivals in the wine market - its last acquisition was in 2001. Allied Domecq, the number two spirits group, has in recent years bought up many wine assets such as Montana in New Zealand and Buena Vista in Napa.
Diageo did not, however, bid for the Mondavi Corporation, which was bought by Diageo's other main rival, the Constellation Group. Diageo spokesperson, Isabelle Thomas, said "We have been very cautious. American super-premium wines have seen good growth and these are young brands that we can add value to." She added, "we are not going on a big spending spree, but when we see something that we think is suitable, and the timing is right - we'll buy it."
The transaction, which is subject to both the approval of Chalone shareholders and the US government, is expected to go through at the beginning of 2005.