Last Drop

At nearly 40% above the market value, its no wonder shareholders are threatening revolt

ONE OF THE disadvantages of paper journalism is that in the week or so it takes a magazine to be printed and dispatched, stories can have changed completely.  Take Mondavi.

In the last ten days (as I write this) the company has announced its intention to split, seen the Mondavis leave the boardroom, and been the subject of an unsolicited offer by Constellation.

  Within the last three hours it seems that the Mondavis (who apparently still wield significant influence among shareholders) have voiced their opposition to the Constellation bid – and been threatened with a lawsuit by some irate shareholders who think that the pretty generous offer should be given due consideration.

In a sense it’s no great surprise.  Mondavi has always had something of the air of Dallas meets Arthur Miller about it, from the domineering father figure to the siblings who barely speak, boardroom feuds and lavish vanity projects that lost money hand over fist.

Bearing in mind that the company has hardly posted glowing annual returns for the last few years, the Constellation offer of US$1.3bn looks pretty generous.  In fact, since it’s nearly 40% above the market value it’s no wonder that the shareholders are threatening revolt if it’s not looked at properly.

Having said all that, while Mondavi may have had its problems, you don’t bid US$1.3bn for a turkey – and the imploding Californian could bring significant benefits to the ambitious multinational.

Firstly, the Mondavi purchase would make Constellation an even bigger player in the US, with an estimated 20% of what is probably the world’s most important wine market.  Secondly, the Woodbridge range would give Constellation a hugely significant brand at probably the most important price band in the US market, the $6-8 level.

Moreover, it’s a local brand with a good story behind it.  Which brings us to the third point: heritage.  BRL Hardy (as was) has never been as successful at marketing its top-end wines as, for instance, Southcorp.

The trade might know the story of Grange, St Henri etc, but the histories of Eileen Hardy and Jackie Mann remain a blank, which is one of the reasons the wines remain largely underrated. The Mondavi story, though, is well-known and will go some way towards humanising the rather utilitarian Constellation wine portfolio.

Yes, they’re offering to pay top dollar for it, and yes since they appear to be already committed to the Chalone deal, acquiring two Californian wineries at the same time is an expensive way of running your company.

But the indicators are that the board have seen an opportunity to plug several gaps in their portfolio at one time and are going to make damn sure that they don’t miss out.  Certainly, the shareholders aren’t likely to block such a generous bid.

All of which begs the question: what of the family? When the Robert Mondavi Corporation announced its intention to sell off the trophy end of the business, (pre the Constellation offer) Tim Mondavi was busily engaged in the process of raising funds to allow the family to buy the top estates.

But should the Constellation offer go through, it’s hard to see where the family stand.  Yes, they’ll be very wealthy, but it’s hard to see them wanting to work for a company like Constellation.

Should the deal go through (and if rumours of their opposition turn out to be true, that’s far from certain) my bet is that they’ll take the money plus a few of the trophy estates and Tim Mondavi will go off to do his own thing.

Quirk of genius

It’s tough being a hostage to your own brilliance, as I have been reliably informed by several angst-ridden wine writers in my time.  So pity Guinness, trapped in a thankless web of brilliance of their own creation.

The stout has had some of the best advertising campaigns of the last 20 (indeed, 50) years. From ‘Guinness is good for you’, through Rutger Hauer to the rubber-limbed young chap with the unfeasible eyebrows dancing to mambo, the standard has been relentless.

So where’s the problem? Well, the difficulty with making iconic ads is that consumers come to expect them as standard, and when quality inevitably dips it has a negative effect, with consumers feeling disappointed.

Visually, no-one will be let down by the latest Guinness ad.  Mustang is a quality piece of cinematography – as it should be since it was shot by Anthony ‘English Patient’ Minghella with a budget (£15m) high enough to make half a dozen French filmes noires.

But this, in a sense, could be its problem.  Epic in its sweep it may be, but it does not have any of the trademark quirkiness that for so long marked out the Guinness campaigns, and which consumers seemed to like.

Nonetheless, it is a major improvement on the previous ‘settling moths’ (incomprehensible) and ‘Believe’ (cod-Irish nonsense) campaigns.  Perhaps it will, as Diageo doubtless hopes, reverse the brand’s fortunes in Britain (off 3% last year).

But you’ve got to sell an awful lot of stout to cover a £15m investment.