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June 2015 WINES&VINES 15 WINE INDUSTRY NEWS L ondon, England—Many reports from the United Kingdom say Diageo, the British alcohol beverage giant, has put up its wine brands for sale. They include premium Beau- lieu Vineyard, Sterling Vineyards, Acacia Vineyard and Provenance Vineyards, plus lower end Blos- som Hill, reportedly the largest California wine brand by volume sold in the United Kingdom. The company isn't talking, nor are the brokers likely to be charged with selling or managing any transactions. Wine represents only 4% of the Diageo portfolio, and it is less profitable than the company's large volume spirits and beer brands. Guinness brewing lies at the heart of the company. Other major wine companies such as E. & J. Gallo, Trinchero Family Estates and Constellation Wines are also beefing up their spirits (and beer) portfolios. Gallo is already the largest U.S. brandy producer (Paul Masson), and the others have been adding tequila and other popular spirits. Diageo sold 17 of its prime Napa Valley real estate hold- ings, including Beaulieu and Sterling wineries (along with 400,000 square feet of produc- tion, retail and hospitality space connected to the two wineries) and 2,000 acres of vines to Re- alty Income Corp. in 2010 for $269 million under a long-term, triple-net leaseback agreement. A 20-year lease gives Diageo the option to extend the lease for up to 80 years. Though Diageo sold the two iconic wineries, the company con- tinues to manage and operate the properties and retain "ownership of the brands, vines and grapes, which remain a strategic part of Diageo's wine business," a news release stated at the time of sale. Ownership of the vines doesn't include the land, however. The sale occurred after a re- view of business that "resulted in a reduction in the workforce and may also include the sale of non- strategic brands," according to the statement, which added, "The benefit to free cash flow in the year ending June 30, 2010, is ex- pected to be in the region of $200 million. The transaction will also improve the return on invested capital of the Diageo Chateau & Estate Wines business." Acacia Vineyard in Carneros and Provenance Vineyards in Rutherford (both in Napa County, Calif.), as well as Chalone Vine- yards in Monterey County, Calif., and the large Blossom Hill produc- tion facility and vineyards in San Benito County (also owned by Diageo) were not affected by the deal in 2010. Provenance occupies a high- visibility location on Highway 29 in the Napa Valley, and it could be a prime catch for a wine company seeking a presence there. Realty Income Corp., based in Escondido, said at the time it an- ticipated that Diageo would be- come its second-largest tenant, generating 5.7% of its total reve- nue, or $327.6 million. With growth in RIC's portfolio during 2014, the Diageo operations dropped to 2.6% of its portfolio. An attorney who is involved in many of RIC's deals said that a buyer of the winery brands would likely assume the lease. Beaulieu Vineyard in Ruther- ford (called BV locally) was one of the wineries that built Napa Valley's reputation along with nearby Inglenook Vineyards. Ster- ling Vineyards, built in the style of a monastery on a knoll in Cal- istoga and reached via a gondola, remains perhaps Napa Valley's most dramatic setting. Georges de Latour and his wife Fernande established Beau- lieu in 1900. The winery was bought by international con- glomerate Heublein Inc. in 1969, and Heublein was acquired by RJR Nabisco, then sold to Grand Metropolitan in 1987. Grand Metropolitan became Diageo in 1997 through a merger with Guinness Brewery. English expatriate Peter New- ton founded Sterling in 1964, sell- ing it to the Coca-Cola Co. in 1977. Seagram bought the winery in 1982 and was in turn purchased by Diageo in 2001. —Paul Franson Sterling Vineyards is set on a knoll in Calistoga. TOP STORY Diageo Reportedly Tries to Sell Brands Including BV, Sterling CALIFORNIA RAINFALL—SEASON TO DATE Season to Date Average to Date Percent of Average to Date Lodi 10.3 13.2 78% Monterey 5.1 8.5 60% Napa 21.0 34.1 62% Sonoma 23.3 29.0 80% RAINFALL SEASON TO DATE—PERCENT OF AVERAGE 0 20% 40% 60% 80% 100% Rainfall season July 2014-June 2015, rainfall data in inches through May 14. Source: winebusiness.com, California Irrigation Management Information System Lodi Monterey Napa Sonoma