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Mondavi Stock Surges on Sale Speculation

A plan to reduce the founding family's voting power would make it easier to split up the company, analysts say.

August 24, 2004|Jerry Hirsch | Times Staff Writer

Shares of Robert Mondavi Corp. reached their highest level in three years Monday on speculation that the company could be sold or split into two.

The stock rose 9.4% to $40.69 on Nasdaq. The run-up followed news late Friday that Mondavi, the maker of the Woodbridge, Robert Mondavi and Opus One wines, planned a reorganization of its capital structure that would reduce the Mondavi family's voting control over the landmark California winery to 40% from 85%.

Reducing the family's stake would make it easier "to put a for-sale sign on the entire company" or, more likely, split it up, analyst Jeffrey Kanter of Prudential Equity Group said in a report to investors Monday.

The Oakville company, which helped to establish California's reputation as a producer of fine wine, also said it planned to break its operations into two divisions. One would manage its premium wines, including $125-a-bottle reserve Cabernet Sauvignons, while the other would handle brands that typically sell for less than $15 a bottle.

For The Record
Los Angeles Times Wednesday August 25, 2004 Home Edition Main News Part A Page 2 National Desk 1 inches; 43 words Type of Material: Correction
Robert Mondavi wine -- An article in the Business section Tuesday about Robert Mondavi Corp.'s reorganization attributed comments about the wine maker to analyst Jonathan Feeney of Wachovia Securities. The comments should have been attributed to analyst Jeffrey Kanter of Prudential Equity Group.

"It has become increasingly clear in the new wine environment that $50 Napa Valley Cabernet and $6 premium wines require different business models," Greg Evans, Mondavi's chief executive, said in a statement. Mondavi executives didn't return phone calls.

Wineries are finding that it is increasingly hard to sell wine in varying price ranges without distinct sales organizations, said Robert Nicholson, an industry consultant in Healdsburg, Calif. Fine wine typically moves in smaller lots to high-end wine stores and restaurants, and the lower-priced offerings are primarily shipped in large volume to grocery stores and other mass merchandisers, he said.

The advent of bargain-priced vintages, such as the $1.99 Charles Shaw brand sold by the Trader Joe's grocery chain, has further complicated the business by lowering prices and increasing competition. The low-priced wines have undercut sales of Mondavi's Woodbridge label.

The Mondavi reorganization would come during a time of renewed consolidation in California's $14-billion wine industry.

In May, Constellation Brands Inc., the world's largest wine company, and Domaines Barons de Rothschild, owner of France's famous Chateau Lafite-Rothschild of Bordeaux, made a joint bid valued at $112 million for Napa-based Chalone Wine Group. Their offer is pending, but if they complete the deal, the two companies would use Chalone as a platform for selling premium California wines.

This year, San Francisco-based Wine Group won a bidding war for Golden State Vintners Inc., agreeing to pay $82 million for the Napa-based bulk-wine producer. In March, E. & J. Gallo Winery purchased 105-acre Bridlewood Estate Winery in the Santa Ynez Valley for $14 million.

Constellation Brands, as well as British wine and spirits producers Diageo and Allied Domecq, are each likely to take a new look at Mondavi once the family relinquishes its voting control, analysts said.

Although the entire business could be sold, Jonathan Feeney, an analyst with Wachovia Securities in New York, said he thought it was more likely that Mondavi would spin off or sell its so-called lifestyle division, which primarily sells vintages from Central California and other less prestigious regions. Those Woodbridge and Robert Mondavi private selection wines account for 86% of the company's volume and about 77% of its revenue. Mondavi posted a profit of $25.6 million on annual sales of $468 million for the fiscal year ended June 30.

"A split-up of the two businesses," Feeney said, "would leave the Mondavis with total control of the brands most associated with the family ... returning it to its roots of selling high-priced wines."

In the recapitalization plan, the company would eliminate a dual-class stock structure where owners of the Class B shares -- Mondavi family members -- hold super voting rights. The family would exchange each of its Class B shares for 1.165 Class A shares.

"The proposal to create a unified share structure is consistent with the company's commitment to adopting a corporate governance structure that adheres to best practices among publicly held companies," Ted Hall, Mondavi's chairman, said in a statement.

The plan requires the approval of Class A shareholders at the company's annual meeting Oct. 29. The shareholders will also vote on a motion to reincorporate the business in Delaware.

Following the recapitalization, Mondavi said it would repurchase $30 million of its stock.

The reorganization plan underscores the waning influence of the descendants of Robert Mondavi, who founded the business in 1966 following a fight with family members who operate the CK Mondavi Winery in Napa Valley.

Hall replaced R. Michael Mondavi this year as the first non-family member to serve as chairman. Michael Mondavi has since gone on leave. Just prior to Hall's appointment, company patriarch Robert Mondavi gave up his seat on the board of directors. And in 2001, Evans replaced Michael Mondavi as CEO.

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