Wine Group buying Argentinian Bulk Supplier?

In an interesting strategic move, the Wine Group is reportedly buying Argentina's largest bulk wine exporter, Trapiche-Penaflor. Penaflor exports nearly half of its production, which amounted to 760,000 cases in 2004. I mentioned previously that Wine Group was due to buy something, though I confess that this purchase, if it happens, caught me a bit by surprise.

The story behind the acquisition is reportedly that Wine Group has changed its appellation on its wine-in-the-box products to "American" which allows them to use 25% non-US produced wine. Since Penaflor has been exporting for about $17 per case ($1.42 per bottle), even after shipment costs it makes sense to have this supply ready, particularly given a short 2004 harvest and the recent removal of 100,000 acres of central valley grapes in California that together are putting upward price pressure on the shrinking bulk wine supply.