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Famed winery changes hands

December 23, 2008|Jerry Hirsch

Yet another iconic wine estate has slipped out of the hands of a historic California family.

Acquisition-thirsty Foley Wine Group of Los Olivos on Monday said it had bought Sebastiani Vineyards, a Sonoma winery that had passed through generations of family members over the span of 104 years.

A slumping market for higher-priced wine, the lack of a clear succession plan and years of division among the third generation of Sebastianis were behind the sale, according to people familiar with the transaction.

The terms of the sale of the winery and its 230 acres were not announced. But industry sources say Foley paid $50 million for the company to the families of the three grandchildren of founding patriarch Samuele Sebastiani.

"This was not a unanimous decision and it was somewhat contentious, but the family came together and decided in a collegial manner," said Don Sebastiani, who represented one of the three family branches in the sale. He declined to say how he voted or offer more details.

Similar issues have tripped other famous California wine families. Infighting among Robert Mondavi and his sons combined with poor management and financial choices to force the $1-billion sale of the landmark Napa Valley winery to Constellation Brands Inc. in 2004.

In 2002, E. & J. Gallo Winery bought the Louis J. Martini winery from the Martini family.

Founded 75 years ago, the brand was once one of California's most respected.

But the family was unable to keep pace with shifting tastes -- such as the growth in white Zinfandel -- and increased competition from within California and imports.

That year, Gallo bought the Mirassou brand from one of the oldest winemaking families in the U.S. At the time, fifth- and sixth-generation family members worked at the winemaker.

"Most of these old-name family wineries have struggled with generational change," said Vic Motto of Global Wine Partners, a St. Helena, Calif., investment bank that specializes in wine industry transactions. "It is hard for the children to take over from a strong entrepreneurial patriarch."

Sebastiani Vineyards sells about 280,000 cases of wine annually, which deprives it of the heft of a mass-market producer as well as the cachet and nimbleness of a small artisan or boutique vintner, Motto said.

With the acquisition, Foley Wine Group will increase its sales to about 500,000 cases across multiple labels.

The company is a comparatively new creation of William P. Foley II, founder and chairman of Fidelity National Financial Corp., a multibillion-dollar title insurance and claims-management services company based in Jacksonville, Fla.

Foley launched his first wine venture only 11 years ago, buying a small winery in Ballard, near Santa Ynez, and renaming it Lincourt. Within a year, he bought a 460-acre horse ranch close by in the Santa Rita Hills that he renamed Foley Estates Vineyard & Winery.

Since then, Foley has bought Firestone Vineyards, another family winery, and hundreds more vineyard acres in the Santa Rita Hills. This year, he bought Three Rivers Winery in Walla Walla, Wash., and Merus, an expensive, cult Cabernet Sauvignon maker in Napa Valley.

"I really like the wine business, and as a buyer there are some winery opportunities that are going to develop over the next 12 months," said Foley, who divides his time among his Florida title insurance business, a ranch in Montana and his California wine holdings. But he concedes devoting an increasing amount of his attention and his millions to wine.

"I needed to be bigger so that we have leverage in dealing with wine distributors. Sebastiani should get me there, and now I just need to consolidate distributor relationships in all the different states," Foley said.

He had held on-and-off talks with the Sebastiani clan for the last six months.

The winery dates its founding to 1904, when Samuele Sebastiani, an immigrant from Tuscany, Italy, bought vineyards in Sonoma County.

His son August Sebastiani and August's wife, Sylvia, took over the winery in 1944 and set about increasing the company's production, in part by marketing premium varietal wines in popularly priced magnums, bottles that hold twice the amount of the typical 750-milliliter wine container.

After August died in 1980, Sylvia became chief executive and named Sam, the eldest of her three children, president. Their business relationship was contentious, however, and she ultimately fired him amid conflicting visions for the company. She replaced him with her youngest son, Don, a former California state legislator, in 1986 and stepped down from her position as chief executive. She remained the majority stockholder until her death in 2003.

Under Don, sales grew fourfold to about 8 million cases annually, but he resigned in 2001 after selling off the company's giant Vendage and Talus mass-market brands and Central Valley winemaking operations for $295 million. The firm retrenched, rebuilt its original winery and turned its focus to premium Sonoma County wines.

Control of the business passed to his sister, Mary Ann Sebastiani Cuneo, the current chief executive. Her husband, Richard A. Cuneo, is chairman and their son, Marc, is director of grower relations.

Don started a winery under his own name in 2001. Don Sebastiani & Sons is now one of the state's 15 largest wineries, selling the Smoking Loon and Pepperwood Grove brands.

The Sebastiani Vineyards sale comes as the market for higher-priced wine sags because of the recession. Sales of wine priced $15 and above dipped about 3% in the four weeks ended Nov. 15 compared with the 2007 period, according to Nielsen Co., which tracks retail scanning data.

Foley thinks the slump will help him make more winery purchases, he said. "I think prices for wineries are moving my way."


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