Sabaté Diosos SA

Espace Tech Ulrich
BP 301
66403 Ceret Cedex
France
Telephone: ( + 33) 4-68-87-20-20
Fax: ( + 33)4-68-87-35-36
Web site: http://www.sabate.com

Public Company
Incorporated: 1939
Employees: 1,549
Sales: EUR 231.7 million ($185.36 million) (2001)
Stock Exchanges: Euronext Paris
Ticker Symbol: SBT
NAIC: 321999 All Other Miscellaneous Wood Product Manufacturing

Sabaté Diosos SA is the world’s number two producer of natural and artificial corks for wine bottles and the world’s leading producer of oak barrels for the wine industry. Formed from the 2000 merger of Sabaté SA and Diosos SA, the company expects to build on its expanded range of wine industry support products to follow the increasing internationalization of the worldwide wine industry. With growing amounts of quality wine being produced outside of France—not only in the United States’ Napa Valley but in Chile, South America, Australia, and elsewhere—Sabaté Diosos has positioned itself to remain a premium supplier of closures and barrels. Sabaté produces corks for wine and sparkling wines and champagnes. More than half of its cork sales come from natural cork; an increasing share of the company’s revenues comes from sales of its Altec natural-artificial hybrid corks. Sabateé has strengthened its position as a vertically integrated company, with subsidiaries involved throughout the cork supply chain, from growing and harvesting, to raw material preparation and production of the final product. The company also operates a small business in supplying winemaking ingredients and additives. The Diosos cooperage side, formerly a holding of Remy Martin, produces barrels from the famed French oak and other oaks. Cooperage operations accounted for slightly more than half of Sabaté Diosos’ revenues in 2001 of EUR 237 million. The company is led by co-CEOs Marc Sabaté and Michel de Tapol and is quoted on the Euronext Stock Exchange.

Cork Maker in the 1930s

Modeste Sabaté was a journalist in his native Catalan, Spain, who fled his country when Ferdinand Franco came to power after the Spanish Civil War. Sabaté settled in Roussillon, near the Spanish border and the French Mediterranean basin. In 1939, Sabaté founded a company and began producing corks. He was joined by sons Augustin, Alex, Bernard, and Georges in 1960.

Cork had been used as a bottle stopper since the 1600s, when Dom Perignon fashioned the first cork for his famous champagne. Cork was quickly adopted for the so-called “tranquil” wines as well and, before long, cork had become synonymous with bottled wine. At first centered in the south of France, the cork industry gradually moved south, following the richest areas of the cork-producing oak, Quercus Suber in the Catalan region of Spain and Portugal. One of the earliest of the industrial cork makers appeared in Spain in the 1750s.

Cork remained a fairly rare commodity, growing only in certain areas along the Mediterranean basin. The growth cycle of the cork oak was rather long—more than 30 years for the maturation of a tree. Harvesting cork was a delicate process as well. A first harvest, culling the so-called “male” bark from the 30-year-old tree, exposed the underlying “female” or “mother” bark, which then required a further 9 to 11 years of growth before the cork could be harvested. The production of finished cork itself required another year to two years of effort.

Yet cork’s success among French and international wine makers came from the natural material’s qualities, allowing just enough air to pass through to aid in the oxidation process of aging fine wines, while being flexible enough to provide a tight seal for the bottle. Nonetheless, cork was not without its shortcomings. Being rare, it was rather expensive for bottlers of cheaper wines. In addition, cork was long plagued by its vulnerability to 2,4,6-trichloroanisole, or TCA, a chemical compound capable of tainting wine—producing the musty, off-flavors of so-called “corked” wines. The wine industry began a search for means of eliminating TCA. Modeste and sons, especially Augustin Sabaté, began building the company into one of France’s leading cork producers. The company also took a leading role in the search for means of reducing, if not eliminating entirely, TCA from their corks. In 1985, the company patented a new method for cleaning cork, using hydrogen peroxide and dubbed SBM by Sabaté. The invention represented somewhat of a breakthrough for the wine industry and helped Sabaté capture a leading position among the world’s cork makers. Modeste Sabaté died in 1986, and Augustin Sabaté took over as head of the family-owned company.

Integrated Wine Products Provider in the 21st Century

The French wine industry stimulated the creation of other industries aside from cork making. One of the most important of these, at least as far as the fame of French wines was concerned, was that of the production of the casks used for aging wines. Crafted (typically by hand until rather late in the 20th century) from a specific species of French oak, the casks became essential to the quality of French wines.

An early cooperage was that of Tonnellerie Moreau, based in Charente, a region of western France near the Bordeaux wine industry. Founded in 1838, that company enjoyed a degree of prominence up until World War I. Moreau was joined by other cooperages, including Sequin, founded in 1870. The two companies were later brought together under Remy Martin, which took a majority share in Moreau in 1958 and reoriented the company toward the production of casks for Remy Martin’s core cognac and related spirits products. Remy Martin acquired full control of the company in 1972. By the late 1970s, more than 70 percent of the company’s sales came from its parent company. By then, however, Sequin Moreau had decided to refocus itself as a producer of casks for the Bordeaux wine producers, then for other wine producer regions of France. After successfully imposing itself as a leading cooperage for the French market, Sequin Moreau began attacking the international market, opening an office in Australia in 1988 and an office in Napa, California in 1992. The company also diversified into producing casks from other species of oak, notably from Russia and North America.

Another fast-growing cooperage was that of Tonnellerie Radoux, founded in 1947 by Robert Radoux. That company crafted its cask after the traditional fashion until the arrival of Radoux’s son, Christian, at the company’s head. The younger Radoux converted the company to limited liability status in 1982 and began industrializing much of its production processes, while maintaining nonetheless traditional methods, materials, and designs. In the late 1980s and early 1990s, Radoux began to seek greater vertical integration, buying up Sciage de Berry in 1987 and France Merrain in 1991 to ensure its supply of cask components. The company also launched its own wine-making ingredients distribution subsidiary in 1991.

Radoux sold out to investor Michel de Tapol in 1997. Two years later, Tapol merged Radoux with Sequin Moreau, one of its primary competitors. The new company, dubbed Diosos, became the world’s leading producer of oak casks for the wine market. Remy Martin, meanwhile, remained a major shareholder in the company.

During this time, Sabaté also had been growing strongly. The SBM patent had helped establish the quality of Sabaté’s cork, and the company soon grew to become the main rival for industry leader Corticeira Amorim, of Portugal. A major step in Sabaté’s development came with its acquisition of Spain’s Corchos de Merida, a company specialized in raw product purchasing and storage. This acquisition enabled the company to begin the process toward creating a vertically integrated production chain. The Merida acquisition notably helped the company ensure the supply and quality of its raw cork requirements.

The company’s requirements were growing steadily in the late 1980s. Under Augustin Sabaté, the company now turned toward industrializing its production process. In 1991, the company completed construction of a new 65,000-square-meter headquarters and production facility in the town of Ceret. The company then was able to begin converting its production processes to comply with ISO 9002 regulations, a certificate the company obtained in 1995. In 1994, Sabaté confirmed its intention to build its position, placing its stock on the Paris Stock exchange’s unlisted market. One year later, however, the company transferred its listing to the Parisian exchange’s Secondary Market.

Sabaté’s public offering and new production facility also enabled it to pursue development of a new product—a new cork material that the company dubbed Altec. The introduction of Altec allowed Sabaté to straddle an ongoing argument among wine producers of the virtues of natural cork versus newer artificial corks then appearing on the market. Altec was in fact a hybrid of natural and artificial materials, using cork powder produced from a purified cork and combining that with a material developed for Sabaté by Akso Nobel. The new Altec presented a number of interesting properties, notably a greater elasticity than natural cork, as well as a greater resistance to TCA tainting, while retaining some of natural cork’s porosity.

Company Perspectives:

The Sabaté Diosos Group’s perspectives lie with a logic of long-term growth based on: putting in place commercial synergies between the networks of Sabaté and Diosos (Australia, South Africa, South America); improving operating margins by rationalizing production and refocusing the product mix in the cork division and creating an integrated supply chain for American oak in the barrel-making division; searching for innovation both in the production process and the final product in order to improve productivity and to anticipate the needs of an international clientele by producing value-creating products and services.

Launched in 1995, Altec made steady inroads among wine producers, particularly on the international scene. By 1997, the company was selling more than 200 million units per year, some 80 percent of which were sold to the United States. By then, Sabaté had opened an office in the United States, under subsidiary Sabaté USA, located near the heart of the California wine producing region, which began operations in 1995. Sabaté continued to seek means to ensure its vertical integration, and in 1996, the company created a new subsidiary, Sabaté Maroc, a company specialized in the purchasing and treatment of raw cork. A year later, the company expanded horizontally, acquiring cork flooring and materials specialist Aplicork, based in Spain.

Augustin Sabaté died in 1998 and son Marc Sabaté” took over as the company’s president. By then, Sabaté had sold more than one billion Altec corks, confirming the product’s success. That number was to double again just two years later. The company faced a slight setback, however. Sabaté initially had claimed that Altec was entirely TCA-free. A series of TCA taints among its customers, however, forced the company to admit that it was impossible to eliminate the possibility of TCA tainting entirely. Despite a range of bad publicity, the extent of the TCA tainting remained limited to a very small percentage of all bottles using Altec corks. The setback barely slowed down the rise of Altec sales in Sabatd’s revenues; by 2001, Altec represented some 45 percent of Sabaté’s cork sales.

Sabaté moved to expand its bottle-stopping range as it turned toward the new century. In 1999, the company acquired two other companies, including Switzerland’s Suber, a producer of cork for high-quality wines, as well as screwtop caps. Sabaté’s entry into this latter category represented its growing determination to follow the trend toward internationalization of the wine industry, which saw consumers turning away from France to embrace “new” wines from other parts of the world. Screwtop caps were widely considered the best means of closing a bottle of wine. Although French winemakers—and their customers—refused to consider abandoning natural corks, especially for high-quality wines meant to age for long periods of time, other markets, such as Australia, were proving more and more receptive to the idea of adopting screwtop caps. Among the notable advantages of this system was the virtual absence of TCA tainting. Later in 1999, Sabaté took a stake in Sibel, a maker of corks for champagne and sparkling wines. By 2000, the company had completed its takeover of Sibel, taking 100 percent control.

Sabaté’s determination to place itself in line with developments in the worldwide wine industry led it to make a more dramatic move in 2000. In that year the company announced that it had reached an agreement to merge with Diosos SA, creating Sabaté Diosos SA. The merger doubled Sabaté in size, as both the cork division and the cooperage division produced more than EUR 100 million in revenues. Under terms of the agreement, Marc Sabaté and Michel de Tapol agreed to function as co-CEOs of the enlarged group, which sought to position itself as a provider of services and products to the wine industry. Although greeted with some skepticism by stock market observers—who criticized in particular the lack of production synergies between the two companies—Sabaté Diosos remained confident that the merger would enable both sides of the larger group to take advantage of its widened distribution network as it wooed the world’s winemakers. In 2001, the company, which continued to enlarge its production facilities in Ceret, began investigating opening new production facilities to be closer to the growing wine markets in Greece, South Africa, California, and Argentina.

Principal Subsidiaries

Corchos de Merida S.A.; Sabaté Maroc SARL; Altec S.A.; Suber Suisse S.A.; SC Finance; Diosos S.A.

Principal Competitors

Corticeira Amorim, Sociedade Gestora de Participates So-ciais, S.A.; Supreme Corq Inc.; Tonnellerie François Frères SA; Tonnellerie Vicard SA; Nadalie-Tonnellerie Ludonnaise SA; Tonnellerie Taransaud SA; Tonnellerie Saury SA; Tonnellerie Bouts SA.

Key Dates:

1838:

Tonnellerie Moreau, later a founding member of Diosos, is founded.

1870:

Seguin, another member of the later Diosos company, begins producing casks.

1939:

Modeste Sabaté starts up a cork production company in Rousillon, France.

1947:

Robert Radoux begins crafting casks.

1958:

Moreau and Sequin merge and Remy Martin becomes a majority shareholder.

1960:

Modeste Sabaté is joined by sons Augustin, Alex, Bernard, and Georges.

1972:

Remy Martin acquires full control of Moreau Seguin, which produces casks for cognac and eau-de-vie.

1977:

Christian Radoux takes over his father’s business and introduces industrial production methods.

1979:

Moreau Seguin begins producing casks for the French wine industry.

1985:

Sabaté patents the SBM cork cleansing process.

1986:

Sabaté acquires Corchos de Merida of Spain.

1990:

Seguin Moreau begins international expansion and begins producing casks using Russian and American oaks.

1991:

Sabaté opens a new 65,000-square-meter headquarters and production facility in Ceret, France.

1994:

Sabaté launches its first public offering on Parisian unlisted securities market.

1995:

Sabaté joins Paris stock exchange’s Secondary Market.

1999:

Moreau Seguin and Radoux merge to form Diosos SA.

2000:

Sabaté and Diosos merge to form Sabaté Diosos SA.

Further Reading

Cuny, Delphine, “Scepticisme sur le regroupement Sabaté-Diosos,” La Tribune, October 24, 2000.

Hiaring, Philip, “Sabaté,” Wines & Vines, August 1999.

Kinetz, Erika, “Cork and Barrel Makers Face Risks Too,” International Herald Tribune, June 23, 2001.

“Plastic Wine Stoppers: A Corking Row,” Economist, June 5, 1999.

“Sabaté Diosos abaisse ses perspectives de croissance,” La Tribune, July 25, 2001.

—M.L. Cohen