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Mondavi Shares Sink on Downgrade

June 14, 2003|Melinda Fulmer | Times Staff Writer

Shares of Oakville, Calif.-based Robert Mondavi Corp. fell 8% on Friday after an analyst downgraded the stock on concerns about the company's ability to compete in an increasingly crowded wine market.

"With no visible evidence of improving fundamentals and Mondavi's balance sheet health ... estimated to deteriorate ... we find it hard to justify the recent rally in shares," said analyst Caroline Levy of UBS Warburg in a research report.

Levy, who could not be reached for comment, lowered her rating on the stock to "reduce" from "neutral." She also dropped coverage of the company.

Mondavi's shares, which had surged 25% to $26.89 in recent months, fell $2.11 to $24.78 on Nasdaq.

Levy and other analysts say the winery's shares had been bid up recently as rumors intensified about the company being a takeover candidate in part because of its low stock price and shift to more independent directors.

"It's been a lightning rod for discussion," said Bud Leedom of Wells Fargo Securities, which has a "buy" on the stock. Leedom and his firm don't own shares or have a banking relationship with the company. "The stock is trading at a significant discount to its book value. Clearly, these guys are a takeover target because of the assets they have."

Mondavi, with $440 million in annual sales, owns 9,500 acres of vineyards in California and makes such brands as premium Robert Mondavi Private Selection and the less expensive Woodbridge.

Mondavi Vice President Robert Philipps said the company is committed to remaining independent. Its board, he said, had considered the idea of a possible sale or merger a couple of months ago, but ultimately dismissed it. "The outside directors, in diligently performing their role, have looked at ways of increasing shareholder value," he said. "We decided to stay independent."

Australian news reports recently have identified Mondavi as a potential acquisition target for Foster's Group Ltd., which bought California winery Beringer Wine Estates in 2000. Leedom said British beverage giant Diageo also has been mentioned as a possible buyer.

A purchase could be difficult because the Mondavi family owns 42% of the company's shares and 88% of its voting stock.

Patriarch Robert Mondavi, who turns 90 on Wednesday, has given away much of his stock to charity. He now owns 10% of the stock, but has said he plans to donate the remaining shares in coming years.

Some analysts have speculated that the family might sell its struggling Woodbridge brand, which makes up 74% of its volume and 57% of its profit, and hold on to its prestigious higher-end wines that bear Robert Mondavi's name.

Woodbridge, which sells for $5 to $7 a bottle, has been hit hard in the last year by super-value wines such as $1.99 Charles Shaw, discounting by rivals such as Kendall-Jackson and a flood of low-cost wines from Australia.

In recent years a weak economy and several lackluster vintages have softened demand for Mondavi's more expensive wines. The winery lost $1.6 million, or 10 cents a share, in its fiscal third quarter ended March 31, contrasted with net income of $7.6 million, or 46 cents, a year earlier. Sales fell 12% in that period.

In coming quarters the company will have to account for $146 million in off-balance-sheet leases on Central Coast vineyard property that has declined in value, Philipps said.

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