Completion of $810M Gallo-Constellation wine portfolio deal should stabilize grape, distribution networks: expert
E. & J. Gallo Winery and Constellation Brands (NYSE: STZ and STZ.B) on Tuesday announced the completion of the sale of 32 brands, including several based or launched in the North Coast.
It’s a key milestone in Constellation’s multiyear move toward a more upscale portfolio, while it gives Gallo more wines in the under-$11-a-bottle category and additional wineries in which to make them.
First announced in April 2019 as a $1.7 billion sale, the deal took nearly two years to close, as regulators at the Federal Trade Commission objected to the concentration of so much sparkling wine, brandy, dessert wine and concentrate with Gallo. The agency green-lighted the revised deal Dec. 23 after several brands and business lines were excluded.
The long delay disrupted grape supply and wine distribution channels related to these brands, according to Mario Zepponi, founder of Santa Rosa-based Zepponi & Company, a major wine industry mergers and acquisitions firm.
The delay created uncertainty in the grape markets that supports the brands acquired by Gallo,“ Zepponi wrote in an email. ”It created even greater havoc in the wholesale channels due to Gallo’s push to reposition the brands with its wholesalers in several markets. These areas of the industry should begin to settle down now that the Constellation‑Gallo transaction has closed.“
He said Constellation now can focus on investing in premiumization of its portfolio. That now includes Robert Mondavi-related labels; The Prisoner Wine Company; top-selling sauvignon blanc and pinor noir brands Kim Crawford and Meiomi, respectively; Simi; Schrader Cellars; and Mount Veeder Winery. Spirits brands include Svedka vodka, Casa Noble tequila and High West whiskey.
The acquisition includes five wineries in California, Washington and New York plus Constellation’s Polyphenolics business, which makes MegaNatural health products made from wine, grape and seed extracts. One of those wineries is Clos du Bois’ facility in northern Sonoma County.
But while that Geyserville facility will continue to be where the brand is made, it will no longer host consumers for tastings — even when that’s again possible in Sonoma County as the current surge in coronavirus cases eases. Gallo will not operate the Clos du Bois, Hogue Cellars or Wild Horse tasting rooms, according to the company.
“We value the loyal consumer following that these brands have and will continue to support direct to consumer sales to their fans,” Gallo told the Business Journal in a statement.
The company said it is evaluating how it will integrate the new brands — including other North Coast-originated brands Franciscan, Ravenswood, Mark West and Blackstone — and optimize its operations in California coastal regions.
“These are iconic brands within their categories that resonate with consumers,” Gallo told the Journal. “We are excited about the strong presence these brands have throughout the US and around the world. We plan to respect the legacy of these brands while devoting our efforts to revitalizing brands and continuing to make the highest quality wines.”
Part of the December consent order that allowed the Gallo-Constellation deal to finish included Gallo’s pending sale of its Fairbanks and Sheffield dessert wines to Precept Brands for an undisclosed amount.
Constellation sold its grape concentrate business to Vie-Del Company. An approved $255 million deal to sell Paul Masson Grande Amber brandy to Sazerac is set to close later this month.