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Winery Turns Down Wine Group's Offer

Golden State Vintners chooses a $72-million buyout bid from its CEO and his partners.

March 25, 2004|Jerry Hirsch | Times Staff Writer

Golden State Vintners Inc. said Wednesday that it rejected a $72-million buyout offer from Wine Group in favor of a bid from a group led by Chief Executive Jeffrey O'Neill for the same amount.

The announcement drew sharp criticism from the spurned suitor, which withdrew from the bidding and lashed out at Golden State's board for signing off on a deal that was conditioned on O'Neill securing financing.

"We don't understand how a properly functioning board of directors, when presented with our offer, can agree to a transaction that is contingent on the ability of [O'Neill] to raise such a substantial amount of money," David Kent, Wine Group's chief executive, said in a statement.

Golden State did not respond to Wine Group's criticism.

In negotiations this week, O'Neill increased his $6.85-a-share offer for Golden State to match the $7.25-a-share bid by San Francisco-based Wine Group, the third-largest California winemaker and owner of the Corbett Canyon, Glen Ellen and Franzia brands.

O'Neill and his partners plan to borrow about $36 million to complete the transaction, according to Securities and Exchange Commission filings earlier this month. The group has an additional $31 million lined up from equity investors, plus stock from O'Neill's 19% stake in Golden State.

Wine Group withdrew its offer after the stock market closed Wednesday. But earlier in the day, investors clearly expected another round of bidding. Shares in Napa, Calif.-based Golden State rose 10 cents to $7.39 on Nasdaq. The company went public in 1998 for $17 a share.

Golden State's agreement with O'Neill has a 30-day window during which the board can review other bids.

Jeffrey Brown, chairman of Golden State and a partner in an Irvine venture fund that holds a controlling interest in the wine company, said the board would consider higher offers. However, Golden State has granted O'Neill a right to match better offers, and the board is under no obligation to accept a bid that isn't obviously superior, Brown said. Ties would go to O'Neill.

"We have been meticulous and by the book," Brown said.

As both the chairman of the company and the representative of its largest stakeholder, Brown said he was comfortable with the board's action.

SBIC Partners, a fund managed by Brown's company -- Forrest Binkley & Brown -- stands to make the most from a Golden State buyout. SBIC owns almost a third of Golden State and controls 62% of the voting stock. And, for now, it is supporting the O'Neill deal, which would take the wine company private.

Golden State supplies wine to the companies that own the Beringer and Sutter Home brands and does private-label bottling for Safeway Inc. and other retailers. It accounts for about 2% of the state's wine production.

In the first six months of its current fiscal year, Golden State posted a profit of $6.1 million on revenue of $52 million, compared with a profit of $4.1 million on sales of $49.2 million in the year-earlier period.

The dealing for Golden State is just the latest indicator that California's $14-billion wine industry is climbing out of a three-year grape glut that pushed down prices for everything from wine to wineries.

On Tuesday, E. & J. Gallo Winery said it reached an agreement to purchase Bridlewood Estate Winery in Santa Ynez Valley from its founder, Cory Holbrook. Terms of the deal were not disclosed, but the 105-acre Bridlewood was on the market for $20 million, according to Wine Market Report, an industry newsletter.

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