Brown-Forman selling Fetzer to Concha y Toro

[Robin Garr]

Interesting. As a wine writer in Louisville, I've watched Brown-Forman, traditionally a Bourbon company, trace an interesting trajectory through the wine business over the past quarter-century or so. Here's the latest chapter ...

NEWS RELEASE

LOUISVILLE, KY, March 1, 2011 – Brown-Forman Corporation (NYSE: BFA, BFB) announced today that the company has completed the strategic review of its Hopland, California-based wine assets. As a result, Brown-Forman has agreed to sell Fetzer Vineyards to Chilean wine producer Viña Concha y Toro S.A. for $238 million.

Brown-Forman acquired Fetzer in 1992 from the Fetzer family. At the time of acquisition, the Fetzer company was selling nearly two million cases annually. Under Brown-Forman’s stewardship, Fetzer’s depletions grew to more than three million cases in calendar year 2010. Founded in 1968, Fetzer has been recognized consistently as a leader in varietal wine development, sustainable agriculture, and as an environmental leader.

Included in this sale of Fetzer Vineyards are the Fetzer winery, bottling facility, and vineyards, as well as the Fetzer brand and other Hopland, California-based wines, including Bonterra, Little Black Dress, Jekel, Five Rivers, Bel Arbor, Coldwater Creek, and Sanctuary. Also included in the sale is a facility in Paso Robles, California. The fiscal 2010 net sales contribution from these assets was $156 million, including excise taxes. The key facilities are located in Hopland, California and employ approximately 240 people. The sale does not include the super-premium Sonoma-Cutrer brand or the company’s long-term agency relationship with Korbel California Champagnes.

In December, Brown-Forman announced it was exploring strategic alternatives for the Hopland, California-based wine assets, including a possible sale. During this process, the company considered a range of alternatives but ultimately concluded that selling the business was in the best interest of Brown-Forman shareholders.

“Brown-Forman and our partners have done a great job with these brands over the years, but as our company has grown globally and our portfolio strategy has evolved, we concluded that our company and our shareholders are best served by redirecting our resources to those opportunities around the world which offer stronger growth and higher returns on invested capital,” said Brown-Forman Chief Executive Officer Paul Varga. “This will also enable us to more fully focus on our best growth prospects in our most important market, the United States.”

The sale of Fetzer Vineyards is expected to close in April 2011 and projected to increase fiscal 2011 earnings per share in the range of $0.20 - $0.30. This transaction is subject to regulatory clearance in the U.S. and customary closing conditions. The company plans to discuss this transaction further during its fiscal 2011, third quarter earnings call on March 8, 2011.

Rabo Securities USA, Inc. and Rothschild acted as financial advisors to Brown-Forman in this transaction. Pillsbury Winthrop Shaw Pittman LLP and Stoll Keenon Ogden PLLC acted as legal advisors.

Founded in 1883, Viña Concha y Toro S.A. is Latin America’s leading producer and occupies an outstanding position among the world’s most important wine companies, currently exporting to 135 countries worldwide. Uniquely, it owns around 9,500 hectares of prime vineyards, which allows the company to secure the highest quality grapes for its wine production. Concha y Toro’s portfolio includes a wide range of successful brands at every price point, from the top of the range Don Melchor and Almaviva to the flagship brand Casillero del Diablo and innovative stand-alone brands such as Palo Alto and Maycas del Limarí.

For 140 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia, Jack Daniel’s & Cola, Canadian Mist, Fetzer, Korbel, Gentleman Jack, el Jimador, Tequila Herradura, Sonoma-Cutrer, Chambord, New Mix, Tuaca, Woodford Reserve, and Bonterra. Brown-Forman’s brands are supported by nearly 4,000 employees and sold in approximately 135 countries worldwide.

For more information about the company, please visit http://www.brown-forman.com/

I'd love to hear what the Fetzer's think of this. I recently stopped at Saracina winery near Hopland which is owned by one of the Fetzer's, and enjoyed the wines, the caves, and the olive oil from 100 year old trees. It still seems strange to me to have a winery named after your family and not be associated with it. I know that is the way of branding, but it grates on me a bit. I don't know much about Vina Concho y Toro but guess I'll hear more about them.

i imagine that the fetzers were hood winked by the brown forman execs - as i remember, they are an oh, so religious lot. other than liquor, i can't think of a single wine brand they haven't screwed up - fetzer worst of all. just think what they could have done with bonterra if they had really tried. will concha y toro do any better? who cares? as was said, its just a 'brand'. you move the bottling line from one spigot to another. i enjoyed selling fetzer when it was a family operation; but......

i imagine that the fetzers were hood winked by the brown forman execs

I don't know anything about this but I imagine the Fetzers couldn't pass up the money being offered to them.

We're all prostitutes its just that each of us has a different price.

i imagine that the fetzers were hood winked by the brown forman execs - as i remember, they are an oh, so religious lot. other than liquor, i can't think of a single wine brand they haven't screwed up - fetzer worst of all. just think what they could have done with bonterra if they had really tried. will concha y toro do any better? who cares? as was said, its just a 'brand'. you move the bottling line from one spigot to another. i enjoyed selling fetzer when it was a family operation; but......

David, those are some unfortunate...and in at least one case...absolutely wrong statements.

The Fetzers were not "hoodwinked". They understood clearly the nature of what they were doing, and if not all, at least most, were perfectly willing to sell the brand and their name attached as part of the brand identity.

The Brown-Forman execs are not "an oh, so religious lot." And that is a scurrilous accusation. Call them hard-nosed business people if you want. Accuse them of not being very savvy in the wine business, or not adequately committed to it, and you'll get no argument from me. But there's no need to bring spurious and false religious issues or chicanery into the situation. You can't accuse them of being religiously opposed to wine, then laud them for their liquor successes. That's ridiculous.

It may interest you to know that members of the Fetzer family not only profited greatly from their sale to Brown-Forman, but several Fetzer family members continued to work directly for Brown-Forman for several years afterwards, and the B-F Fetzer operation worked happily with several of the Fetzers in their subsequent vineyard operations, often receiving their grapes in totality. As far as I know that situation still exists. The subsequent B-F Fetzer company continued to be led by Paul Dolan for many years as President; Paul was the former head winemaker for Fetzer, and is married to one of the Fetzer daughters.

I won't pretend to speak for the Fetzers---it''s not my place to do so---but I will suggest that they agreed they were no longer willing to commit themselves so totally to a brand at a time when, for business reasons, it had reached a plateau of volume/price/distribution, and required both massive effort and massive investment to rise to the next level, and as a group sought a suitor. The Fetzers profited greatly from the sale to B-F, and many of them stayed involved in the wine business, primarily on a smaller scale. Many of them were growers (supplying Fetzer and other wineries); many of them established wineries, some successful, some not, but all on a more personal and artisanal level.

I'll also defend Brown-Forman's record in terms of Bonterra. Whatever the reasons they did it for, it was Brown-Forman that took the nascent Bonterra operation and developed it further along the lines of sustainability, organics, and biodynamics. And they did a damned good job of it, from my perspective. Of course, I was there and involved in it, so I'm biased. Bonterra is an absolutely magnificent property, and the Butler Ranch, which is solely a B-F creation, was an even more magnificent addition to it. I sincerely hope Concha y Toro recognizes what Bonterra is and succors it; the place deserves it.

That was a front-page story in the Santa Rosa Press-Democrat this morning.
The story quoted one of the Fetzers as approving of the sale and hoping that Concha y Toro would use more "local" fruit.

John

John: Yeah, that's been a steady complaint for the last several years, not just from the Fetzers, but from most of the local growers.

The B-F corp saw it as a straight business decision: when the demands for volume and keeping prices low (because Fetzer wasn't capable of transitioning up and out of its perceived price zone) became strong, Fetzer made the decision to buy throughout the California AVA---i.e., go for less expensive fruit sources. Mendo had gotten to be fairly expensive, and in some cases prohibitively so for a 'value brand'. So they did what many other wineries of that type did....went elsewhere for less expensive sources. Not saying it was the right move, mind you, but it was the standard move for a corporation to make.

I always thought that B-F could have, and should have, done much more for supporting the homeboys with local signature offerings---but that wasn't in the nature of what the Fetzer brand had become; the Bonterra brand was focusing strictly on organics/biodynamics; and B-F, honestly, was severely challenged at developing new, small wine brands---they always looked at it as a significant investment with an extremely low rate of return, and therefore not worth it. But that is one of the features of the current paradigm for a successful stockholder corporation in this country, isn't it? And the pure fact is, corporations find it harder to deal with the vicissitudes of applying a corporate structure on what is still being seen as an artisanal enterprise. It's the nature of things.

I haven't had any Fetzer-branded wine recently (used to drink the Gewurztraminer when I lived in Monterey) but I have enjoyed Bonterra and coincidentally decided to open a Sanctury Zinfandel tonight to go with a strip steak when I decided a red Burgundy would better be opened with pork, duck or roasted chicken. I also enjoyed some Jekel Syrah in the last couple years.

if I had accussed the BF lot of being religious and therefore anti alcohol while admiting their success with liquor, that would of course be rediculous. i did not. my impression of the head guy when i heard him speak many years ago - don't remember the name - was of religiousity. i wish that sort of thing would carry over into business dealings but it usually does not. anyway, my impression is that Bonterra was the lead snowball. but maybe there just weren't enough organic grapes available to grow the brand any faster - that is certainly possible. anyway, in my market Fetzer is a shadow of its former self. maybe they have been filling in the poorly performing areas around the country so it looks like it is still successful; but not here. Sundial Chard was #1 in its category. does it even exist anymore?

if I had accussed the BF lot of being religious and therefore anti alcohol while admiting their success with liquor, that would of course be rediculous. i did not. my impression of the head guy when i heard him speak many years ago - don't remember the name - was of religiousity. i wish that sort of thing would carry over into business dealings but it usually does not. anyway, my impression is that Bonterra was the lead snowball. but maybe there just weren't enough organic grapes available to grow the brand any faster - that is certainly possible. anyway, in my market Fetzer is a shadow of its former self. maybe they have been filling in the poorly performing areas around the country so it looks like it is still successful; but not here. Sundial Chard was #1 in its category. does it even exist anymore?

Nope, they killed off Sundial years ago, David. Said that focus groups told them it wasn't as strong a separate brand image as they thought it was. (I disagreed.) It all became "Fetzer Valley Oaks".

The "lead snowball" of Bonterra became a steamroller in recent years. For a long time Bonterra persevered with its message and it was difficult to get across--but they continued. Sometimes the whole organic/sustainable thing was falling on what seemed like deaf ears. But within the last few years, finally it started resounding and everything clicked (well, in conjunction with the addition of Butler Ranch, which is a spectacular vineyard development, and added to strongly to the quality and diversity). Bonterra was actually cited as one of the growth brands because it was doing so well.

Fetzer? It became another commodity brand for grocery stores. I thought there were still some nice wines in the mix, but in a basic way. Still drink the Sauvignon Blanc and the Zinfandel myself.

well, that sundial story adds a new wrinkle to the philosophy of 'capitalism'. i mean the 'market' is supposed to run the show. now it turns out that focus groups do. who knew? thanks for that - i love it. god, we sold a lot of fetzer. i just watched the number climb and shook my head. always enjoyed a glass of the original sundial. then BF 'improved' it with "a bit of oak for added complexity" and that was the beginning of the end. sundial was what you used to sell the rest of the brand. so without that, the rest is history. and what genious decided to close that wonderful Hopland facility? i'm tempted to say it was 'an outward and visible sign of an inward and spiritual blessing' - but i guess the family was really the spiritual part of it. anyway, its a damn shame. and now its owned 'offshore'. can't be any worse. RIP.