The back side of the wine business completely reminds me of one of my favorite childhood games, Monopoly, because this is all it seems to me as an outside observer.
Every time I read a headline like this one from Wine Business:
“Report: Brown-Forman to sell wine business ~ And the lead into that is, “has reportedly hired Rothschild to run the auction process after its wine business – which includes brands such as Fetzer and Bonterra Vineyard – delivered sluggish sales for several years…”
I can’t help but think, “They’re at it again.”
And, it seems that every week, as I read Wine Business’s daily E-Mail to me, some other wine company is either buying or selling some piece of real estate. Like the game, public wine corporations are always looking toward the future and their portfolios. They can’t wait to get their hands on another wine company to put into their lineup, as soon as the economy has a downturn. Then, things go back up in the cycle, they bump along trying to market their new products (buying the little green houses and red hotels), and then the cycles head back downward again (because they landed on paying income tax)… They always do hit one of the snags in the game, completing the cycle.
If corporations ever figured out how to to make their products warm and fuzzy, without the real human element behind it, they might not be forced to decide what to unload this time around. But, that’s the other half of the yin-yang. Warm and fuzzy is reserved for the small, artisan companies… far away from investor needs.
I can’t help but wonder, in that weeding out, does the corporation’s portfolio really get that much better?
I just read about Constellation from their press release:
“Constellation Brands, Inc. (NYSE: STZ), the world’s leading premium wine company, announced today it has signed an agreement to sell its Australian and U.K. business, (Constellation Wines Australia and Europe, CWAE), to CHAMP Private Equity (CHAMP) of Sydney, Australia. The transaction is valued at approximately $290 million. The company will retain an approximate 20 percent interest in the business and receive cash proceeds of about $230 million, subject to closing adjustments. The transaction, which is expected to close by the end of January 2011, is subject to customary and routine closing conditions. The transaction includes virtually all Constellation’s Australian, U.K., and South African brands, wineries, facilities, vineyards, and the company’s 50 percent interest in Matthew Clark, the U.K. wholesale joint venture. All CWAE employees will transfer with the business.”
In this corporate environment, wine companies are just another commodity… like pork, wheat, soybeans, or rye.
Another story from Investment U:
“Recently, some takeover opportunities have opened up for Diageo. Just over a month ago, Fortune Brands (NYSE: FO) said it was breaking up the company.
“The stand-alone spirits company, which produces Jim Beam and others, does look tempting. But it would have to be a partial takeover due to antitrust concerns.
“Meanwhile, French luxury goods group LVMH (PINK: LVMUY) may be selling its 66% stake in Moet Hennessy, a leading maker of cognac and other drinks. Diageo already holds a 34% stake there, and complete ownership would give it solid exposure to Asia.
“But Diageo might not be able to bid low enough to satisfy its shareholders.”
So, who’d be in the Boardwalk and Park Place positions? Gallo is Boardwalk, because they’re the largest privately owned wine company in the world; and Constellation is Park Place, because they’re the largest publicly owned company in the world… still eclipsed by Gallo.
I like that the largest wine company is at least family owned. This means that their employees aren’t a commodity, which is in the rule book for corporate Monopoly.
Diageo is in direct competition with Constellation for the coveted #1 position for publicly owned companies, in this case wine.
I figure that by at least playing the board game, I could get in on some serious fun. Right now, all I have to offer is being the Community Chest. We’ve all probably seen that annoying cartoon, investment commercial by Charles Schwab that says, “What, own a vineyard for an investment? Com’mon, give me a break.”
As the corporate game goes on of buying and selling, we’ll mostly all just enjoy the still surface of it all… the wines.
- UPDATE 2-Constellation, Brown-Forman to unload wine ops-WSJ (reuters.com)
- Report: Brown-Forman, Maker of Jack Daniel’s, To Sell Wine Business (newyork.cbslocal.com)
- Constellation to Sell Australian Wine Businesses (businessweek.com)
- Constellation sells wine business, loses top slot (bkwineblog.blogspot.com)
- Face-Off on Stocks: Diageo, Constellation, Brown-Forman [Video] (dailyfinance.com)