California scheming: Mondavi changes hands

by Carolyn Tillie

Many close to the family were appalled that Robert Mondavi himself would have to witness the dissection of the company he had worked so hard to create. Constellation – now the largest wine company in the world, with an annual production of 80 million cases (E & J Gallo, of Modesto, is next largest, with about 70 million cases) – has insisted that Mondavi’s fine wines will flourish under the new ownership.

All eyes were on California-based Robert Mondavi Winery this autumn as a modern soap opera unfolded – one involving protagonists from the wine industry and Wall Street, a chorus of Napa Valley residents, last-minute plot twists and, for many, a surprising ending.

In the middle of September, the board of directors of the Robert Mondavi Corporation announced that it would sell the core assets of the wine empire that 94-year-old Robert Mondavi and his son, R. Michael Mondavi, began building in 1966.

These included the flagship to-Kalon winery in Oakville, substantial quality-producing vineyards in Stags’ Leap and Carneros, as well as California icon Opus One (founded in 1978 via a partnership with Baron Philippe de Rothschild), Viña Seña in Chile, and Luce della Vite and Ornellaia in Italy. Michael Mondavi offered to step down as vice chairman but was meant to continue serving on board along with brother Timothy Mondavi and sister Maria Mondavi Berger. Robert’s son Peter quit when the decision was announced.

The strategy was to spin off the highest-priced, small-production wines – as well as recently purchased Byron Winery and Vineyards in Santa Maria and Arrowood Winery and Vineyards in Sonoma in order to focus instead on ‘premium and super-premium lifestyle wines’ – larger production, lower-priced labels such as Woodbridge, Robert Mondavi Private Reserve, La Famiglia and a few other, more obscure labels. At US$15 or less per bottle, these wines contribute 81 per cent of the company’s revenue.

Business issues aside, many close to the family were appalled that Robert Mondavi himself would have to witness the dissection of the company he had worked so hard to create – and they questioned whether anyone in the family would have the resources to regain it privately.

Wall Street responded positively; within a few weeks, the corporation’s stock rose on the news that one of the world’s largest wine and spirits conglomerates – Constellation Brands (owner of such diverse brands as Black Velvet Candian Whisky, Corona beer, and BRL Hardy) – had made an unsolicited offer estimated at US$1.3 billion (37 per cent more than the company was worth on that day), with the proviso that all of Mondavi’s labels and luxury-wine divisions be included in the deal.

The wild rumpus started. Mondavi, indicating that it would consider the offer, continued restructuring and announced that shareholders would have a chance to vote on 30 November on the proposed recapitalisation programme. Within two days, a lawsuit was filed on behalf of shareholders Bamboo Partners, over the company’s decision not to accept immediately Constellation’s offer. Two more class-action suits followed amid claims that the company was not acting in the best interests of the shareholders.

Just as the corporation announced net quarterly losses and laid off a third of its workforce, Constellation’s bid was accepted on 3 November. The deal will keep all Mondavi brands intact rather than dispersing them among different owners. While founder Robert will stay on as brand ambassador, and consultant winemaker Tim is likely to have a role, plans for other family members have not yet been disclosed. Constellation – now the largest wine company in the world, with an annual production of 80 million cases (E & J Gallo, of Modesto, is next largest, with about 70 million cases) – has insisted that Mondavi’s fine wines will flourish under the new ownership.