US: Diageo takes Chalone for $260m

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Diageo, the world's largest wine and spirit group, is to acquire the US wine company Chalone Wine Group for US$260m.

The deal trumps an original takeover agreement Chalone had with Domaines Barons de Rothschild (Lafite). The termination of that arrangement will see Diageo pay US$2,475,000 in compensation to DBR on Chalone's behalf.

Chalone said that it had agreed for Diageo to acquire all its outstanding publicly held shares for US$14.25 per share in cash, US$2.50 per share more than what Domaines Barons de Rothschild had offered.

Under the Diageo terms, Chalone will also receive a special one-time wine credit of $1.00 per share, as well as a commitment to continue to provide certain Wine Club benefits to such shareholders.

The transaction, which is subject to Chalone shareholder approval, government approvals and other customary conditions, is expected to close in the first quarter of 2005.

Diageo said the acquisition is expected to yield significant synergies. It is therefore anticipated to become economic profit positive during the third full year of ownership. 

Diageo North America president and CEO, Ivan Menezes, said: "The US wine market represents a growth opportunity for Diageo, with favourable demographic and consumption trends. Our North American wine business, Diageo Chateau & Estate Wines, has proved its ability to develop premium brands and drive value through integrating businesses. In our last fiscal year, Beaulieu Vineyard and Sterling Vineyards reported growth of 35% and 22% respectively, making DC&E one of the best performing US wine companies.

"The compatibility of Chalone's operations to our existing Diageo Chateau and Estate Wines business will enhance our ability to integrate the two businesses and to innovate, to the benefit of the enlarged range of premium brands." 

Diageo Chateau & Estate Wines' president, Ray Chadwick, said: "By combining the premium wines of Chalone with our current premium brands we can improve our customer and consumer proposition to provide further growth opportunities.  We look forward to working with the people and brands of Chalone as we continue to focus on quality and our robust innovation agenda." 

In the year ended December 31, 2003, Chalone reported gross revenues of US$69.4m, net sales of US$67.4m, EBITDA of US$15.2m and operating income of US$7.5m.  Total volume for the year was 675,329 cases (135,065 equivalent cases).

Sectors: Wine

Companies: Diageo, Beaulieu Vineyard

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