Monday, October 04, 2004

Mondavi and Reality - ships passing in the night

Robert Mondavi Corp filed a press release Friday assuring Wall Street that they will achieve the numbers they had previously forecast for the divestment of their luxury wines ($400-500 million after taxes).

The HJWOW would like to reiterate its position that Mondavi cannot possibly achieve the numbers they have published without either:

a.) a significant change in their cost structure (which is what today's announced layoffs of 360 employees might be intended to demonstrate) with dramatically increased net earnings - as in 4 times greater.

or

b.) a buyer in need of a significant tax shelter.

This isn't the first time Mondavi has put assets on the market at ridiculous prices, either. The old Byron winery in Santa Barbara county has been for sale for years, as have several vineyards in Mendocino and a winery facility purchased for the Grand Archer brand that has been sitting idle for over three years. The Vichon/la Famiglia facility in Oakville finally sold last year after sitting on the market for over a year at nearly double the final sales price. Vineyards in Santa Barbara finally sold earlier this year, but not after the prices were brought down to reality. Seeing the pattern?

It seems as though this company thinks that every asset they touch turns to gold, at least in their eyes....how long will it take before the prices on the Luxury assets settle down to reasonable numbers? or is this the way that the family will get it all back - by being the only buyer foolish enough to pay a price far above what the Napa winery can return?

4 Comments:

Anonymous Anonymous said...

Hugh,

Any thoughts on Tim's abrupt departure today from the company...stepping down as vice chairman and winegrower and moving to a consulting role?

Is it possible that the recruitment of Jean-Michel Valette as president and m.d. of the luxury wine division is a way to reassure potential investors in the RMW that there's an executive with good business sense at the head of the company -- in a scenario where the family finds investors to help take RMW private again?

October 06, 2004 9:23 PM  
Blogger Huge said...

I had heard that Tim's executive assistant was given notice last week. That seemed to set a tone for Tim's removal. It may seem odd for him to stay as a consultant, but the corporation needs a face for wholesalers and others to put with the company until the split is complete.

Valette is a very experienced M&A guy (still works with Constellation on deals) and is no doubt in place to make the deal happen smoothly, as nobody internally at MOND is capable of this type of thing. Further, he was probably much cheaper than alternative investment banks.

Yes, I think the family will probably have to pair up with investors to make this happen. Whether they can find investors interested in such a meager return is in question, however.

Overall, I find the board's treatment of the Mondavi family and this split of the brands to reek of arrogance. But, when you get a $1 million signing bonus to lead the board (as Ted Hall did) you probably start with a pretty inflated ego anyway....

/huge

October 07, 2004 9:43 AM  
Anonymous Anonymous said...

Hey Huge,
What do you think the prospects are for Bob and Margrit keeping their offices at the winery? Do you get the sense that the corporate side of the businesses' goal is to clear out all the family members...or do you think it was strictly an issue with Michael and Tim?

October 12, 2004 8:32 PM  
Blogger Huge said...

Everything else aside, I'm 99% sure that the family will end up with the Oakville winery again. Why else would they give up voting control of the stock? So yes, I think everyone will keep their offices. As far as this being a Tim or Michael battle, I think that Michael is upset with the split (Tim probably less so) and will probably be buying the vineyard that surrounds his house (and his Dad's) in Stag's Leap.

/huge

October 13, 2004 10:56 AM  

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