Beringer Wine Estates Holdings, Inc.

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Beringer Wine Estates Holdings, Inc.

1000 Pratt Avenue
St. Helena, California 94574
U.S.A.
(707) 963-7115
Fax: (707) 963-5430
Web site: http://www.beringer.com

Public Company
Incorporated: 1996 as Beringer Wine Estates Holdings, Inc.
Employees: 610
Sales: $269.4 (1997)
Stock Exchanges: NASDAQ
SICs: 2084 Wines, Brandy & Brandy Spirits

Owner of the oldest continuously operating winery in Napa Valley, California, Beringer Wine Estates Holdings, Inc. is a leading producer of premium California varietal table wines, marketing its wines under the Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge, Chateau Souverain, and Stags’ Leap brand names. Beringer Wine Estates was formed in 1996 to acquire the Chateau Souverain, Meridian Vineyards, Napa Ridge, and Beringer brands from Wine World, Inc., a subsidiary of Nestle S.A., the global food, beverage, and candy conglomerate. Of these four brands, Beringer by far was the oldest, first appearing in the late 19th century when Jacob and Frederick Beringer opened their first winery. Subsequent generations of the Beringer family retained control over the Beringer brand for nearly a century before selling it to Nestle in 1971. Under Nestle’s stewardship, the Chateau Souverain and Napa Ridge brands were acquired in 1986 and the Meridian Vineyards brand was introduced in 1990. Beringer Wine Estates subsequently added to the portfolio of brands, acquiring the Chateau St. Jean brand in 1996 and the Stags’ Leap brand in 1997. With these wineries under its control during the late 1990s, Beringer Wine Estates ranked as the top seller of premium wines in the United States, controlling more than 14 percent of the domestic market and deriving the bulk of its sales from its Beringer White Zinfandel brand. In addition to its domestically produced wines, Beringer also distributed wines imported from Chile, France, and Italy, which were sold in the United States under the Tarapaca, Rivefort of France, and Gabbiano brand names, respectively. In 1997, when the company converted to public ownership, Beringer Wine Estates owned or controlled 9,400 acres of vineyards in California’s Lake, Napa, San Luis Obispo, Santa Barbara, and Sonoma counties.

19th-century Origins

The roots of Beringer Wine Estates stretched back to the mid-19th century, back to the hometown of the company’s founders in Mainz, Germany. There, where the Rhine and Main rivers met, Jacob and Frederick Beringer spent their childhood and early adulthood growing up in the fertile, winemaking region known as the Rhine Valley. The two brothers developed an early interest in winemaking, particularly Jacob, but neither would express this passion in any meaningful way in their native Germany. Although the Rhine Valley was renowned for its prized vineyards, the lure of greater opportunities in the burgeoning United States drew each of them away from their homeland. Frederick was the first to go. Frederick left Mainz in 1863 and settled in New York, where the rumors of great promise lived up to their billing. Frederick wrote to Jacob in Mainz, urging his brother to come west and join him in New York. Intrigued, Jacob packed his bags and set sail for New York in 1868.

For Jacob Beringer, New York was not the mecca of opportunity his brother had described. Frederick’s interests were in business, ideally suited to the vibrant and chaotic bustle of New York, but Jacob pined for the more sedate wine business and its rural setting. He had spent his years in Mainz studying wine-making and barrelmaking and had worked as a cellarmaster for a local wine company, becoming more comfortable in a wine cellar than on the streets of New York. Accordingly, Jacob left New York in 1870 and boarded a train for California, where rumor had it that the warm and sunny climate was ideal for growing wine grapes. Jacob took a train to San Francisco—dreaming of grapes while others dreamed of gold—and then traveled north to Napa Valley where he was pleased to find rocky, well-drained soil similar to the soil in his native Rhine Valley.

The conditions in Napa Valley were ideal for winemaking, and Jacob settled in, taking a job as a cellar foreman for another expatriated German winemaker, Charles Krug. By 1875 Jacob Beringer was ready to go it alone and, with financial assistance from his brother Frederick, he purchased his first property: the cornerstone of what would develop into the oldest continuously operating winery in Napa Valley. The first project on Jacob’s agenda was to build the wine cellars required to store and age wine. To complete the job, Jacob hired Chinese laborers who were returning to the San Francisco area following the completion of the Trans-Continental Railroad and directed them to hand-chisel tunnels into the hillside of rock on his property. The tunnels took years to complete, but once they were completed they served as ideal wine cellars, where deep within the tunnel system temperatures remained 58°F regardless of the temperatures in Napa Valley.

Work began on the tunnels in 1876, the year Beringer Winery was formally established. While this epic, time-consuming project was being completed inch by inch, Jacob planted grapes and began building his winery. His first crush took place in 1877, and from there the methodical process of developing a fine wine ensued. It took until the early 1880s before the winery reached full-production capacity, but as soon as there were bottles of wine available Jacob began shipping them to his brother in New York. Frederick, in turn, opened a store and wine cellar in New York in 1880 to make room for the growing number of shipments. Three years after opening the store, Frederick moved to St. Helena to be closer to the family business and began building his home, which was modeled after the Beringer home in Mainz. Dubbed the “Rhine House,” the 17-room mansion served as the home for the generations of Beringers. To make room for the sprawling mansion, Jacob’s house was put on logs and rolled several hundred feet away.

The Beringer brothers began to distinguish themselves as competent vintners by the end of their first decade of business. In 1887 Beringer wines earned their first domestic awards, followed by international recognition two years later when Beringer’s Riesling captured the coveted Silver Medal at the Paris Exhibition. Once given the seal of approval from the European wine community, the Beringer winery began to flourish, as Napa Valley vintners gradually earned the respect of connoisseurs overseas. Beringer’s sales and profits swelled accordingly, giving Jacob and Frederick the financial resources to expand their winery and add vineyards. The company’s stature increased, and as the century drew to a close, future growth appeared assured. The 1890s proved to be a lucrative decade for the Beringer winery, but as it would turn out, the last decade of the 19th century marked the end of an era at Beringer and the beginning of troubled times.

From the wine company’s outset, Frederick Beringer had lent valuable talents to the enterprise. His penchant for business, his wealth, and his financial knowledge had contributed significantly to the company’s success during its crucial development from a start-up winery to a recognized producer of premium wines. His death in 1901 delivered decisive repercussions, stripping the winery of its chief financial wizard. Jacob Beringer’s contributions were not to be overlooked—the winery was his inspiration and without his gift for producing wines the Beringer winery could never have existed—but Frederick’s death was a loss sorely felt by the Beringer winery. Without the aid of his brother, Jacob Beringer persevered and managed to keep the enterprise running, but another serious blow was delivered five years after Frederick’s death. The 1906 San Francisco earthquake reduced the city to rubble and caused widespread damage throughout northern California, devastating the region and severely damaging the Beringer winery. Jacob mended the winery and vineyards, but by the decade’s conclusion the combined effect of Frederick’s death and the 1906 earthquake had conspired to make the first decade of the 20th century a disaster compared with the prodigious strides achieved during the 1890s.

Prohibition

At the turn of the century the Beringer winery lost its brains, and in the 1910s the company lost its heart. Jacob Beringer, the creator of the award-winning, internationally praised Beringer wines, died in 1915, paving the way for successive generations of Beringers to steward the fortunes of the Napa Valley winery. The first members of the family to take command were Jacob’s children, who began their tenure of control just prior to perhaps the most anxiety-ridden years vintners could imagine. Prohibition, enacted in 1920, was five years away when Jacob died, but his children ensured the winery would continue to operate by securing a license to produce altar wines. Winery operators without such permission, of course, were forced to exit the business, which went a long way toward giving Beringer the distinction as the oldest continuously operating winery in Napa Valley during the 1990s.

Company Perspectives:

Beringer Vineyards is the oldest continuously operating winery in the Napa Valley. Jacob Beringer’s foresight in recognizing the quality and potential of grape growing in the Napa Valley is part of the living heritage of Beringer Vineyards. With the present use of state-of-the-art technology applied to age-old traditions Beringer Vineyard’s wines continue to reflect a single-minded dedication to the making of memorable wines from great Napa Valley vineyards.

Permission to keep producing wines during Prohibition also enabled Beringer to increase its production output in anticipation of the repeal of the 18th Amendment. The company produced 15,000 cases in 1932, one year before the production and consumption of alcohol was permitted again, giving the company an early lead over its domestic competitors. From 1933 forward it was business as usual at Beringer, as the company resumed production of its full line of varietal wines. Beringer family members, ensconced in the Rhine House, watched over the operation of the business in the decades following the repeal of Prohibition, adding vineyards occasionally as the company matured into an established veteran of winemaking. Beringer’s progress during World War II, the 1950s, and into the 1960s occurred at a leisurely pace, remarkable only for the placid manner in which the company eased its way through the decades. By the 1960s, however, it became clear that the serenity exuded by the company was masking pervasive internal problems. This realization engendered sweeping changes and signaled the end of Beringer family ownership and management after nearly a century of control.

Acquired by Nestle in 1971

For outsiders, the problems were hard to identify individually, but as a whole industry experts agreed that Beringer’s difficulties were caused by decades of ineffective management. Nepotism had led to stagnation. Beringer was not the only wine company suffering from the ills of stagnation during the 1960s. Many of its domestic competitors were family-run businesses that, like Beringer, had failed to maintain their vineyards. Unsatisfactory wines were the result, and the ramification of inferior quality was declining business. By the end of the 1960s Beringer’s difficulties had become grave enough for the family to divest their interests in the company. In 1971, after 95 years of control, the Beringer family sold the Beringer brand name, its wineries, and 700 acres of vineyards.

The new owner was Nestle USA, Inc., a subsidiary of Nestle S.A., the global food, beverage, and confection conglomerate based in Switzerland. After acquiring Beringer, Nestle USA formed a subsidiary company named Wine World, Inc. to superintend the revitalization of the Beringer brand name and the Beringer vineyards. Beringer represented Nestle’s first foray into the wine business, but despite its inexperience the corporation demonstrated shrewd patience in resurrecting the Beringer business. The company took a long-term approach to rebuilding its new acquisition, anticipating it would take between ten and 15 years to orchestrate a complete turnaround. Nestle, through Wine World, Inc., used this time to bring in new management, new technology, and sophisticated expertise in the art of producing wines. As Nestle put its revitalization program into effect, the company’s efforts were aided by a growing trend among U.S. consumers that would benefit it handsomely for its years of investment. Shortly after Nestle acquired Beringer, U.S. consumers began to demonstrate a growing interest in high-quality, premium varietal wines. Previously, consumer preferences had favored generic, or “jug” wines, but during the 1970s and 1980s the American palate was becoming more discerning and, consequently, the demand for “European-style” wine was increasing. This general trend worked in Nestle’s favor as the slow process of rekindling the popularity of the Beringer brand in the United States was under way.

Vineyards that had been purchased during the Beringer family era of control received much greater attention under the auspices of Nestle, such as Beringer’s Knight Valley Vineyard located north of Calistoga, California, which was developed into an integral facet of Beringer’s operations. Knight Valley and other Beringer vineyards were beneficiaries of sizable cash infusions from the deep coffers of Nestle, and over time they either recovered their former luster or were substantially improved. The improvements raised the quality of Beringer wines and gradually the brand name was re-established in the eyes of consumers and wine critics. Although Beringer continued to rank behind such brands as Gallo, Carlo Rossi, Almadén, and Inglenook during the early 1980s, the brand was gaining ground on its competitors by consistently increasing its market share.

At roughly the same time Nestle management could point to a full recovery of Beringer, the U.S. wine industry was expanding exponentially. Between the late 1970s and the late 1990s, the number of wineries in the country increased from 350 to 950, with much of that growth occurring during the 1980s, a decade when Nestlé was ready to expand as well. By the mid-1980s Néstle management felt it had completed its number one priority of reviving the Beringer brand name and was ready to move on to secondary goals. In 1986 the company began expanding, acquiring Sonoma County-based Chateau Souverain, a winery founded in 1943 that specialized in producing red wines, particularly cabernet sauvignon, merlot, and zinfandel. Also in 1986 the company introduced a new brand named Napa Ridge, which used grapes from the coastal regions of California. Expansive vineyards in Santa Barbara were also purchased in 1986 and were used to produce wine for a brand named Meridian Vineyards, which was introduced in 1990.

1990s Brings New Ownership

By the early 1990s the Beringer enterprise was as healthy as it had been a century earlier when Jacob and Frederick Beringer enjoyed their greatest success. Nestle management had transformed the venerable company into a leading wine producer that represented a prize for any interested suitor. In the mid-1990s an interested suitor came forward and set the stage for the second transfer of ownership in Beringer’s history.

Eyeing the company with interest was Silverado Partners Acquisition Corp., which was controlled by an investment group that included Napa-based Silverado Partners and a buyout firm named Texas Pacific Group, controller of Continental Airlines. The two investment groups reached an agreement with Néstle for the acquisition of the Beringer enterprise for $350 million. Once the deal was completed, Silverado Partners and Texas Pacific Group formed Beringer Wine Estates Holdings, Inc. to formally acquire Beringer, which took effect January 1, 1996. Beringer Wine Estates, as the new enterprise in charge of a 120-year-old business, immediately jumped on the acquisition trail to begin expanding its portfolio of properties. Shortly after its formation, Beringer Wine Estates purchased the Sonoma County-based Chateau St. Jean winery, a market leader in the production of premium chardonnay wines. The next acquisition target was the Stags’ Leap Winery located in Napa Valley. Acquired in early 1997, the Stags’ Leap Winery was an accomplished producer of red wines, with particular emphasis on cabernet sauvignon, merlot, and petite syrah.

With the additions made in 1996 and 1997 giving the company a total of 9,400 acres of vineyards, Beringer Wine Estates spent the months following the Stags’ Leap Winery acquisition planning for an initial public offering (IPO) of stock, hoping the company’s stock offering would coincide with a fall harvest expected to be the California wine industry’s best ever. Beringer Wine Estates filed with the Securities and Exchange Commission in August 1997 and made its public debut at the end of October 1997, attracting $26 per share. Confident that the years ahead would witness the continued steady rise in annual sales, Beringer Wine Estates’ management looked ahead to the remainder of the 1990s and the beginning of the 21st century with considerable optimism. At the time of its IPO, the company ranked as the top seller of premium wines in the United States, and the directors of Beringer Wine Estates were intent on not relinquishing their position.