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Diageo Signs Agreement to Acquire The Chalone Wine Group Ltd

December 20, 2004
News Release, NAPA, Calif., Dec. 20 /--Diageo plc has reached an agreement to acquire The Chalone Wine Group Ltd (Nasdaq: CHLN) for a cash consideration of $14.25 per share. The total consideration including debt is therefore expected to be approximately $260 million. The transaction, which is subject to regulatory approval in the United States, is expected to complete in the first quarter of the calendar year 2005. The acquisition of Chalone enhances the range of premium brands in Diageo's North American wine business and is expected to yield significant synergies. It is therefore anticipated to become economic profit positive during the third full year of ownership.
    Diageo North America President and CEO, Ivan Menezes, said, "The US wine market represents a growth opportunity for Diageo, with favorable demographic and consumption trends. Our North American wine business, Diageo Chateau & Estate Wines, has proved its ability to develop premium brands and drive value through integrating businesses. In our last fiscal year, Beaulieu Vineyard and
Sterling Vineyards reported growth of 35% and 22% respectively, making DC&E one of the best performing US wine companies. The compatibility of Chalone's operations to our existing Diageo Chateau and Estate Wines business will enhance our ability to integrate the two businesses and to innovate, to the benefit of the enlarged range of premium brands."
    Diageo Chateau & Estate Wines' president, Ray Chadwick, commented, "By combining the premium wines of Chalone with our current premium brands we can improve our customer and consumer proposition to provide further growth opportunities. We look forward to working with the people and brands of Chalone as we continue to focus on quality and our robust innovation agenda."
    In the year ended December 31, 2003, Chalone reported gross revenues of $69.4m, net sales of $67.4m, EBITDA of $15.2 million and operating income of $7.5m. Total volume for the year was 675,329 cases (135,065 equivalent cases).
    Diageo is the world's leading premium drinks business. With its global vision, and local marketing focus, Diageo brings to consumers an outstanding collection of beverage alcohol brands across the spirits, wine and beer categories including Smirnoff, Guinness, Johnnie Walker, Baileys, JEB, Jose
Cuervo, Captain Morgan and Tanqueray, and Beaulieu Vineyard and Sterling Vineyards wines. Diageo trades in some 180 countries around the world and is listed on both the New York Stock Exchange (DEO) and the London Stock Exchange (DGE). For more information about Diageo, its people, brands and performance, visit us at

    About Diageo Chateau & Estate Wines
    Diageo Chateau & Estate Wines is the US wine business of Diageo and produces and markets premium wine brands such as Beaulieu Vineyard, Sterling Vineyards, Sterling Vintner's Collection, Solaris, Century Cellars, and Blossom Hill, as well as the French wines of Barton & Guestier. The company is
also a leading importer of classified Bordeaux in the US. The selection is
complimented by F.E. Trimbach wines from Alsace, a collection of Burgundy
estate-bottled wines and several other European wines.

    About the Chalone Wine Group
    The Chalone Wine Group is a Napa-based company specializing in premium red and white varietal wines. In California, the Company owns and operates Acacia(R) Vineyard in the Carneros area of Napa County, and Provenance(TM) Vineyards, Hewitt(TM) Vineyard and Jade Mountain(R) in Napa County; Chalone Vineyard in Monterey County; and Moon Mountain(R) Vineyard, Dynamite(R) Vineyards and Orogeny(TM) Vineyards in Sonoma County; and Echelon Vineyards in San Miguel. In conjunction with its 50 percent joint-venture partner, Paragon Vineyard Co., the Company also owns and operates Edna Valley Vineyard in San Luis Obispo County. In Washington State, the Company owns and operates
Sagelands(R) Vineyard and Canoe Ridge(R) Vineyard. In the Bordeaux region of France, the Company owns 23.5 percent of the Fourth-Growth estate of Chateau Duhart-Milon, in partnership with Domaines Barons de Rothschild (Lafite), which owns the other 76.5 percent.

    Forward-looking and cautionary statements
    This press release contains forward-looking statements based on management's current expectations and assumptions. Such statements are subject to certain risks and uncertainties that could cause actual results to differ. The company undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. Reference is also made
to Diageo's Annual Report on Form 20-F filed with the Securities and Exchange Commission and the "Risk Factors" contained therein for other factors that could impact forward looking statements.
SOURCE Diageo plc
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