The California wine industry is waiting with bated breath on reports that a merger or some sort of takeover move is in the works between Beringer and Kendall-Jackson (KJ). If the deal goes down, the combined companies would have total sales of almost $650m. That would make it the largest premium wine producer in the world, according to industry sources.

Reports of the deal have been floating for several days. KJ's CEO Lew Platt has denied the company will be sold to Beringer (which doesn't quite close the door on a merger) and Beringer's VP Mora Cronin has refused to comment on the story. Beringer is a publicly-trade company.

Speculation has been growing for some time that KJ, a family-owned company headed by Jess Jackson, would like to go public, following the lead of Chalone Wine Group, Robert Mondavi and a handful of other US wine companies.

Jon Fredrikson, a San Francisco industry analyst, put the potential deal in perspective for just-drinks.com: "It makes sense but you have to understand, this isn't about wine, it's about money. Kendall-Jackson has been wanting to go public for some time, but the timing was bad. In 1997, a huge harvest on the Central Coast enabled KJ to push sales up by 35%. Then, with the harvest way down in '98 and considerably off in '99, they just didn't have the wine to sell, so sales fell. Lower sales, combined with the downturn of the stock market last spring, made a winery public offering look unattractive to Wall Street, even though the drop in sales was a fluke of nature," he explained.

According to Fredrikson, the deal also makes sense to Beringer because it would more than double its volume and sales, driving up the value of Beringer stock.

Mark Swartzberg, analyst with Salomon Smith Barney (SSB), believes international acquisitions and domestic deals between US wine producers cannot be ruled out. "Companies such as Beringer, Mondavi, Kendall-Jackson, and Canandaigua Brands are keen to expand their leadership of the US wine market and, increasingly, are focused on non-US markets such as the UK (as Gallo long ago did). The interest in Australia is well-documented and will continue to be "hot" for good reasons (e.g. US distribution for Aussies and increased non-US presence and expertise for Americans). That said, I think it's incorrect to conclude that an interest in a trans-Pacific deal supersedes interest in big intra-border US wine deals."

There are strong egos involved on both sides of the deal. Questions of who will really be running things and other issues could still sink the agreement. But if it happens, remember, it isn't about Merlot, it's about money.

Larry Walker