Constellation Brands, Ruffino dispute is ongoing

Constellation Brands, Ruffino dispute is ongoing

Constellation Brands may still be forced to acquire the remainder of Italian wine group Ruffino, but is hopeful of doing so at a lower price than originally expected.

Constellation's CEO, Rob Sands, has said that the US wine giant is likely to end up owning all of Ruffino, even though it has taken legal action to prevent this scenario. Constellation currently owns 49.9% of the Italian wine firm. Last December, Ruffino's controlling shareholder, the Folonari family, exercised a "put option" that entitles it to sell its 51.1% stake in the Chianti Classico winemaker to Constellation for up to EUR55m.

"Although negotiations continue, we now anticipate that we will complete the transaction on substantially revised terms," Sands told analysts following the Robert Mondavi winemaker's full-year results announcement last week.

When Constellation acquired a stake in Ruffino in 2004, it signed a deal enabling the other two shareholders in the company to sell their stakes to Constellation for an agreed price at any point during calendar 2010. In May last year, one of the shareholders, who has not been named, sold its 9.9% stake to Constellation for $23.5m.  

However, in January this year, Constellation said that it had taken legal action "alleging various matters which should affect the validity of the put option" exercised by the Folonaris.

In March, and in a sign that the dispute has become increasingly bitter, the Folonari family launched its own legal action in against Constellation in the New York Western District Court. It is believed to have accused Constellation of unjustly attempting to end a ten-year, exclusive import deal on Ruffino wines in the US.

The price of the put option depends on the interpretation of a formula contained within Constellation's original deal with the Ruffino shareholders in 2004. In its fourth fiscal quarter, to the end of February, Constellation wrote down a US$60m one-off charge in relation to the dispute.

Ruffino, meanwhile, has lost significant value in recent years. In Constellation's previous fiscal year, it was forced to report a $25.4m loss on the Italian company's value.