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Cheers! Gibson Dunn and Ropes & Gray Advise on Duckhorn/Sonoma-Cutrer Vineyards Merger

A vineyard in hilly terrain.

Vineyards in Livorno region (Tuscany) in the morning. Italy

The U.S. wine industry continues to consolidate in the face of Boomers’ insatiable thirst, with The Duckhorn Portfolio, Inc. announcing its acquisition of Sonoma-Cutrer Vineyards for approximately $400 million. Founded in 1973, when the California wine industry was struggling to reinvent itself, Sonoma-Cutrer has grown to become one of the largest luxury Chardonnay wineries in the nation.

According to the deal’s press release, “This acquisition will enhance The Duckhorn Portfolio as a leading luxury ($15+ per bottle) wine company in the U.S., while rounding out its portfolio by significantly elevating the Company’s position within Chardonnay, the number one domestic white varietal.”

California wine production dates back to Spanish Franciscan Missionaries planting the first vines in San Diego in 1769. “Just as palm trees were planted so there would be palm fronds for Palm Sunday,” according to UC Davis, “vineyards were planted so there would be wine for communion.” The northern California vine country of Napa, Sonoma, and today’s current dominant regions did not become popular until the California gold rush brought thirsty miners to the area – and wine makers rushed in to quench their thirst. Over the ensuing decades, California vineyards boomed and were supplying bottles all over the world. Then Prohibition decimated the industry when it was passed in 1918. Wine production plummeted by 94%, and struggled to rebound even long after the 18th Amendment was repealed in 1933.

Worldwide Wine Production, 2023

Source: https://www.forbes.com/sites/lizthach/2023/11/11/climate-change-propels-france-to-1-largest-global-wine-producer-in-2023/?sh=33e7a866fcf3

California’s winemakers’ fortunes finally brightened in 1976, when a group of winemakers submitted their wines into a blind tasting contest – up against the finest French wines, judged by preeminent French judges. To the shock of many, the California wines won both the red and white wine categories, serving as a marketing boon that fueled demand for California’s wines.  

Today, France leads worldwide wine production, but the U.S. has grown to become a major player in the world market, currently ranked 4th.  Climate change is cited for difficulties faced by growers in certain nations: Italy and Spain faced heavy rains that led to mildew destroying many of their grapes, while many South American vineyards suffered from drought and wildfires. In fact, 2023 wine production is projected to be the lowest in 60 years. At the same time, other nations like the United States and Russia, have fared well as some wine production has shifted northward.

Source: https://www.meiningers-international.com/wine/news/2023-wine-production-plunges-lowest-level-six-decades

While wine production is shifting, so are consumers’ tastes. For Americans 65 years and older, wine is overwhelmingly the alcohol of choice; however, wine sales are projected to plummet by 20% over the next decades as younger generations demonstrate interest in other beverages. Adults ages 35-64 split their preference between wine and beer while the youngest drinkers 21-34 years old evenly split their preferences among wine, beer, spirits, flavored malt beverages, and hard seltzer. This change in tastes is believed to be the result of expanding options, with Millennials growing up with access to craft beers and higher end alcohols that were less available to their parents.

Source: https://www.svb.com/globalassets/trendsandinsights/reports/wine/svb-soti-2023-virtual-event-presentation-slides.pdf

According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions, Sonoma-Cutrer Vineyards is advised by law firm Ropes & Gray LLP and Duckhorn Portfolio is advised by Gibson, Dunn & Crutcher LLP. 

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