Calaveras Vineyard Case Summary

Anne Clemens, a senior vice president at Goldengate Capital should take a decision on

whether to participate in a deal of financing $4.5million ($2million term loan and $2.5million

revolving loan) for the management acquisition of Calaveras Vineyards proposed by Tom

Howell, a managing director with NationsBank’s investment-banking group.

Calaveras Vineyards after undergoing 3 changes in ownership in preceding nine years was

under Stout PLC. The winery was positioned itself as a premium category brand and its

products were divided into 5 categories. Important points to be noted while valuing the

proposition are

1. Winston-Fendall, the marketing company, would collect all the receivables on behalf

of Calaveras and remit them to Calaveras.

Nine distributors handled 80% of total volume, with two distributors in California

handling 50% of volume which increases their bargaining power thus reducing the

margins.

3. The value of the intangible asset like brand image is difficult to valuate.

4. Demand for alcoholic beverages stagnated and unit sales of spirits declined but other

companies competing in the premium wine segments posted a 2 digit gains.

5. Calaveras had long term agreement with other vineyards to meet its demand but their

price is variable. The uncertainty about the cost of goods meant that gross margins

could vary by as much as 4%. Assumption of SD of 2% may be not be correct.

6. Red wine which has shown increase in demand was contributing only 23.7% of

revenues hence the growth would be less than the market growth.

7. Sales had dropped in 1993 but operating profit margins increased due to increase in

average price. In long term this will not be the case since the operating costs will

increase due to inflation.

8. The price was expected to grow at a nominal rate of 4% which is too optimistic given

the industry scenario.

9. The firms taken for comparison were not on the same scale they have higher sales in

tune of 10 times or