Friday, October 15, 2004

Mondavi - how it all came apart

Apparently, much of the doings at Mondavi have been in process for quite some time.

After Ted Hall's appointment as COB in January of 2004, he has been pursuing the elimination of the class 'B' shares (those held by the family that give 10-for-1 voting power) in order to lower a perceived risk of lawsuits for a public company that is disproportionately controlled by the Mondavi family.

Simultaneous to Mr. Hall's attempt to merge the two types of stock, the company was pursuing various strategic alternatives, including:

  • Outright sale of the company
  • "combination transactions"
  • separating vineyards, production and marketing assets
  • separating the luxury and lifestyle businesses

Apparently, company management recommended staying the course, but the board unanimously (therefore including family members) rejected this alternative and also unanimously determined that the company should be restructured. The board then told management to come back with a plan for separating the luxury and lifestyle businesses. The board also approved investigating the conversion of class 'B' shares to class 'A' shares at an exchange rate of 1.165, resulting in ~40% control for the Mondavi family, rather than the ~80% control they currently have.

One has to wonder about the coincidental timing of the two votes, however. Would the Mondavi's have given up voting control without an "ace in the hole?" Furthermore, given management's recommendation to keep the luxury and lifestyle businesses together, followed by the board's UNANIMOUS vote against that plan, followed by the board's recommendation to separate the luxury and lifestyle businesses, it seems pretty clear that the family gave up voting control in exchange for a break out of the luxury assets (namely Oakville). What remains to be seen is how they will do this without losing it to another buyer or creating shareholder lawsuits.

2 Comments:

Anonymous Anonymous said...

Huge,
This is fascinating and it makes a lot of sense -- but how do you know all this? Do you have a source on the board? Or are you hearing this from an insider?
And how does this scenario explain Michael's falling out with the board and Tim's resignation? Certainly, the impression I've gotten is that the board and the family have had a falling out of some kind, but it's not clear what that might be.
Anyway, I'd love to hear more.

Regards,
A curious onlooker.

October 15, 2004 12:12 PM  
Blogger Huge said...

I'm not exactly sure how to reconcile the votes with Michael's public statements. I believe his desire was to run the luxury and lifestyle as distinct businesses (within the same company), but not to permanently separate them from one another they way it has been done.

Michael stated in an interview that he and Time and Marcia voted against selling off the luxury brands. I don't know the actual count of that vote, but I believe Michael's frustration was with the outcome of the split of the businesses. In other words, he initially supported running them as two businesses within Robert Mondavi Corporation, but did not support the ultimate sale.

I realize that doesn't completely jive with my post that the Mondavi's intended all along to retain Oakville, but I do believe that they will get it back and that there is an "ace in the hole"

/huge

October 15, 2004 1:54 PM  

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