COMMENT: Robert Mondavi keeping it in the family
Family controlled winemaker Robert Mondavi this week received a US$1.3 billion unsolicited bid from winery giant Constellation Brands. The offer comes at a time when Mondavi is facing slowing sales and difficult restructuring plans and a buyout could potentially ease some of the winemaker's troubles. But opposition from family members may yet prevent the acquisition from taking place.
Californian company Robert Mondavi is at a crossroads. After a recent announcement of plans to restructure the company for greater long term profitability, and the resignation of Timothy Mondavi as vice chairman, the family controlled winery received a US$1.3 billion takeover bid from Constellation Brands, the world's largest vintner. The offer values Mondavi's equity at US$970m, and Constellation would also assume US$333m of Mondavi debt.
The company's financial performance has faltered in recent years, due in part to a slowing economy and increased competition. Mondavi's profits have slumped in the past three years, while its sales too have decreased, seeing a 7.5% drop during that same period, from $506 million to $468 million.
As part of an effort to combat the slump, Mondavi had planned to sell its luxury brands for US$400-$500m, choosing, instead, to concentrate on its faster growing, inexpensive brands. The offer from Constellation provides an alternative for the company: Constellation has apparently promised to keep all Mondavi's brands together and it may even rehire some of the Modavi employees who were recently laid off.
Constellation, however, may find itself facing stiff opposition to its approaches. The Mondavi family, which controls 85% of the winemaker's voting shares, has begun voicing some opposition to the proposal. Prior to his brother Timothy's departure, Michael Mondavi, the former CEO, was asked to resign from the board following his public comments about the sale and announced strong disapproval of the company's strategies. Michael Mondavi has also voiced an interest in purchasing a smaller Mondavi brand, the Robert Mondavi Winery, a move that would be unlikely given Constellation's desire to keep the business together.
As Mondavi struggles to compete in the increasingly crowded wine industry, incorporation into the larger group could give it the required marketing muscle to turn around its falling sales. However, Mondavi family members wield a tremendous influence over voting shares and the impact of their apparent lack of support is not to be underestimated.
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