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Diageo Reportedly Tries to Sell Brands Including BV, Sterling

June 2015
 
by Paul Franson
 
 
Sterling Vineyards
 
Sterling Vineyards is set on a knoll in Calistoga.

London, England—Many reports from the United Kingdom say Diageo, the British alcohol beverage giant, has put up its wine brands for sale.

They include premium Beaulieu Vineyard, Sterling Vineyards, Acacia Vineyard and Provenance Vineyards, plus lower end Blossom Hill, reportedly the largest California wine brand by volume sold in the United Kingdom.

The company isn’t talking, nor are the brokers likely to be charged with selling or managing any transactions.

Wine represents only 4% of the Diageo portfolio, and it is less profitable than the company’s large volume spirits and beer brands. Guinness brewing lies at the heart of the company.

Other major wine companies such as E. & J. Gallo, Trinchero Family Estates and Constellation Wines are also beefing up their spirits (and beer) portfolios. Gallo is already the largest U.S. brandy producer (Paul Masson), and the others have been adding tequila and other popular spirits.

Diageo sold 17 of its prime Napa Valley real estate holdings, including Beaulieu and Sterling wineries (along with 400,000 square feet of production, retail and hospitality space connected to the two wineries) and 2,000 acres of vines to Realty Income Corp. in 2010 for $269 million under a long-term, triple-net leaseback agreement. A 20-year lease gives Diageo the option to extend the lease for up to 80 years.

Though Diageo sold the two iconic wineries, the company continues to manage and operate the properties and retain “ownership of the brands, vines and grapes, which remain a strategic part of Diageo’s wine business,” a news release stated at the time of sale. Ownership of the vines doesn’t include the land, however.

The sale occurred after a review of business that “resulted in a reduction in the workforce and may also include the sale of non-strategic brands,” according to the statement, which added, “The benefit to free cash flow in the year ending June 30, 2010, is expected to be in the region of $200 million. The transaction will also improve the return on invested capital of the Diageo Chateau & Estate Wines business.”

Acacia Vineyard in Carneros and Provenance Vineyards in Rutherford (both in Napa County, Calif.), as well as Chalone Vineyards in Monterey County, Calif., and the large Blossom Hill production facility and vineyards in San Benito County (also owned by Diageo) were not affected by the deal in 2010.

Provenance occupies a high-visibility location on Highway 29 in the Napa Valley, and it could be a prime catch for a wine company seeking a presence there.

Realty Income Corp., based in Escondido, said at the time it anticipated that Diageo would become its second-largest tenant, generating 5.7% of its total revenue, or $327.6 million. With growth in RIC’s portfolio during 2014, the Diageo operations dropped to 2.6% of its portfolio.

An attorney who is involved in many of RIC’s deals said that a buyer of the winery brands would likely assume the lease.

Beaulieu Vineyard in Rutherford (called BV locally) was one of the wineries that built Napa Valley’s reputation along with nearby Inglenook Vineyards. Sterling Vineyards, built in the style of a monastery on a knoll in Calistoga and reached via a gondola, remains perhaps Napa Valley’s most dramatic setting.

Georges de Latour and his wife Fernande established Beaulieu in 1900. The winery was bought by international conglomerate Heublein Inc. in 1969, and Heublein was acquired by RJR Nabisco, then sold to Grand Metropolitan in 1987. Grand Metropolitan became Diageo in 1997 through a merger with Guinness Brewery.

English expatriate Peter Newton founded Sterling in 1964, selling it to the Coca-Cola Co. in 1977. Seagram bought the winery in 1982 and was in turn purchased by Diageo in 2001.

 


 

 
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