Crimson Wine Group (ticker: CWGL). Look it up - it is a publically traded wine company (trades OTC I believe) that is a holding company for several wineries, including in Napa, Sonoma, Oregon, Washington, and other locations on the West Coast of the U.S. The company was a spin out from Leucadia (which bought and is now Jefferies), the holding company for Joe Steinberg. The company owns some premier brands, such as Pine Ridge and others, and while it produces wines and continues to make money, the real asset of the company is in the land it holds.
As a stockholder, I attended the annual meeting in Napa last summer (anyone who holds shares can too). First, contrary to Ilana's post early this quarter, they do pay dividends in wine :) (or at least they provide several free bottles of wine, in addition to tastings, for their shareholders who attend). More important to many of the discussions we have had about owning vineyards during the quarter, however, is that several shareholders at the annual meeting asked whether or not Joe planned to sell off the land and split the vineyards up. The reason being that the land is currently held on the companies book at the value purchased, something like $50mm, whereas current market rates would place the value of the land alone at $300 - $350mm. With the stock currently trading at only $200mm, many investors have bought the stock hoping that a savvy investor, such as Joe Steinberg, plans to sell off the assets, which would create significant upside for a currently "undervalued" stock. That said, my observations from the meeting are that owning the vineyard is much more of a hobby and passion - Joe, like others, probably likes to own the vineyard for sentimental and bourgeoisie reasons, rather than as an opportunity to generate immediate value through financial engineering. While I am sure Joe, or more likely his heirs, will eventually execute the plan many investors would like to see happen to generate significant returns, it is probably not happening any time soon - making this much less likely of a stock for immediate appreciation, and more of an exercise in trying to time the market (and Joe or his heirs' whims).
Sunday, March 17, 2019
Bottigleria - Heaven in Venice
First, a shout out to Taylor, who's post about living in Paris and his experience with wine inspired me to write this post.
In the summer of 2011, I was living and studying in Venice, Italy. Up to that point I had mostly drunk wine at family events (usually at least halfway decent bottles), or extremely cheap crap in my freshman year at college. My wine pallet was due for significant expansion. That summer I became familiar with some of the nicer Italian styles, which have become some of my favorite since, such as Amarone, Chianti, Sangiovese, Barolo, Barbaresco, and many more. Though I tried some of these nicer wines, the truth was I had very little money for such purchases, so I drank these wines rarely. Much more common, and to some extent much more enjoyable, were my wine excursions to the local bottigleria on the island of Giudecca, a short walk from where I lived.
Bottigleria loosely translates to bottlery if such a word existed, or more easily understood, bottle shop. The bottigleria would bring in wine by the cask and unload it at the crack of dawn from small barges straight into the shop. I would love to watch the flurry of activity in the early hours of the morning, from the fruit vendors unloading their supplies into their carts and stores, to the fisherman offloading their catch to the local merchants, to the coffee shops just opening their doors to accommodate the flurry of business men and women who would be shortly inbound for Italians' favorite morning ritual.
I digress from the wine. The bottigleria would sell us the wine straight from the cask. We would bring our 1.5L water bottles that were always with us, line them up under the tap, and open it up. Filling the water bottle only cost 2 euros when I lived there. 2 euros for 1.5L of wine, what a deal! More meaningful though was how the wine tasted. It was fresh, unaged, rough, raw, and real, it came straight from the country side. It was as if you could taste the Veneto dirt in which the vines grew. Given how much wine we drank the price was an appeal too. I often think about how great the wine was and the phenomenal memories I made while drinking wine in Venice that summer. Cin Cin!
In the summer of 2011, I was living and studying in Venice, Italy. Up to that point I had mostly drunk wine at family events (usually at least halfway decent bottles), or extremely cheap crap in my freshman year at college. My wine pallet was due for significant expansion. That summer I became familiar with some of the nicer Italian styles, which have become some of my favorite since, such as Amarone, Chianti, Sangiovese, Barolo, Barbaresco, and many more. Though I tried some of these nicer wines, the truth was I had very little money for such purchases, so I drank these wines rarely. Much more common, and to some extent much more enjoyable, were my wine excursions to the local bottigleria on the island of Giudecca, a short walk from where I lived.
Bottigleria loosely translates to bottlery if such a word existed, or more easily understood, bottle shop. The bottigleria would bring in wine by the cask and unload it at the crack of dawn from small barges straight into the shop. I would love to watch the flurry of activity in the early hours of the morning, from the fruit vendors unloading their supplies into their carts and stores, to the fisherman offloading their catch to the local merchants, to the coffee shops just opening their doors to accommodate the flurry of business men and women who would be shortly inbound for Italians' favorite morning ritual.
I digress from the wine. The bottigleria would sell us the wine straight from the cask. We would bring our 1.5L water bottles that were always with us, line them up under the tap, and open it up. Filling the water bottle only cost 2 euros when I lived there. 2 euros for 1.5L of wine, what a deal! More meaningful though was how the wine tasted. It was fresh, unaged, rough, raw, and real, it came straight from the country side. It was as if you could taste the Veneto dirt in which the vines grew. Given how much wine we drank the price was an appeal too. I often think about how great the wine was and the phenomenal memories I made while drinking wine in Venice that summer. Cin Cin!
Let me clarify wine & food pairing - Hydrophobic
I may have slightly mispoken during Alder Yarrow's presentation (which I thought was great), but one of the winemakers I have visited in Napa provided a chemical explanation for wine and food pairing, as well as general wine enjoyment, that I found extremely compelling. As we all know, the best way to make a small fortune in the wine business is to start with a larger one - and for Mr. Hendry, that is exactly what he has done. He is an accomplished engineer, having owned and worked for many large corporations, but continues to grow and produce wine on his family's vineyard as his passion. When I visited, he showed us many of the ways he continues to try to innovate in the wine production process, bringing in newer scientific methods to supplement many of the traditional methods for production.
One of the most interesting insights he had, however, was that wines, particularly good red wines, have many tannins. What he then discussed was that tannins are in fact highly hydro-phobic. What does this mean? Hydro-phobic, from those who remember their cellular biology, means that a compound is phobic or hates water, such as the inside of the double lipid cell-memberanes that exist in each of our cells in our bodies. As we all of course recall, the way that membrane is structured is such that the hydrophillic ends point to the inside and outside of the cell, the areas that are water filled, while the hydrophobic ends point towards each other to prevent water from passing fluidly through the cell memberane, such that our cells can control the amount of water in them at any given time. Why is this important? Well typically when people drink a lot of red wine, they then drink water in order to try to sober up and continue being able to taste the wine. Given that tanic wines are hydrophobic, however, I learned that drinking water would not work, since the hydrophobic tannins, which line our tongue after drinking red wine, would simply repel the water. Instead, as Mr. Hendy suggested, we eat olive oil or other foods high in lipds (also hydrophobic), and since "likes attract", this would mean that the hydrophobic lipids in olive oil would bind with the hydrophobic tannins on our tongue, thereby stripping them away. This would permit one to drink more red wine and continue to experience the complexity and taste. Take one step farther - he logically concluded that the reason why red wines and more fatty meals, such as red steak, often pair well together is that the fats, or lipids, in the steak peel the tannins off the tongue, allowing us to taste the wine more, and vice versa, even enhancing the flavor of the other.
So while Yarrow may have been right that there is no strict pairing of foods and wine, at least from one smart chemical engineering wine-maker, it would seem to make sense that the pairing of foods and wines with the right balance of chemicals should make each more enjoyable. But I leave it up to all of you to test it over your break.
One of the most interesting insights he had, however, was that wines, particularly good red wines, have many tannins. What he then discussed was that tannins are in fact highly hydro-phobic. What does this mean? Hydro-phobic, from those who remember their cellular biology, means that a compound is phobic or hates water, such as the inside of the double lipid cell-memberanes that exist in each of our cells in our bodies. As we all of course recall, the way that membrane is structured is such that the hydrophillic ends point to the inside and outside of the cell, the areas that are water filled, while the hydrophobic ends point towards each other to prevent water from passing fluidly through the cell memberane, such that our cells can control the amount of water in them at any given time. Why is this important? Well typically when people drink a lot of red wine, they then drink water in order to try to sober up and continue being able to taste the wine. Given that tanic wines are hydrophobic, however, I learned that drinking water would not work, since the hydrophobic tannins, which line our tongue after drinking red wine, would simply repel the water. Instead, as Mr. Hendy suggested, we eat olive oil or other foods high in lipds (also hydrophobic), and since "likes attract", this would mean that the hydrophobic lipids in olive oil would bind with the hydrophobic tannins on our tongue, thereby stripping them away. This would permit one to drink more red wine and continue to experience the complexity and taste. Take one step farther - he logically concluded that the reason why red wines and more fatty meals, such as red steak, often pair well together is that the fats, or lipids, in the steak peel the tannins off the tongue, allowing us to taste the wine more, and vice versa, even enhancing the flavor of the other.
So while Yarrow may have been right that there is no strict pairing of foods and wine, at least from one smart chemical engineering wine-maker, it would seem to make sense that the pairing of foods and wines with the right balance of chemicals should make each more enjoyable. But I leave it up to all of you to test it over your break.
Wasps and wine making
I was reading a blog when I came across an interesting fact: wasps (the insects) play a key role in wine making. I had previously just thought they were annoying bee lookalikes who stung me in the muggy Augusts of my childhood. Alas, how wrong I was! It turns out that one of the main yeasts used for wine making is saccharomyces cerevisiae, which grows naturally on grapes. The fungus which lends the wine much of its flavor, dies off each winter. The fungus however, relies on wasps for preservation.
The adult wasps ingest the fungus before it dies off, then return to their nests to share masticated fungus with their larvae, thus ensuring that both the adult wasps and larvae have the fungus within them. The larvae and any surviving adult wasps then return to the grapes as the grapes begin to grow again in the spring, and the fungus is passed back to the grapes, allowing the wine to get its delicious flavor.
Source: https://www.celebrationswineclub.com/little-known-wine-tidbits/
The adult wasps ingest the fungus before it dies off, then return to their nests to share masticated fungus with their larvae, thus ensuring that both the adult wasps and larvae have the fungus within them. The larvae and any surviving adult wasps then return to the grapes as the grapes begin to grow again in the spring, and the fungus is passed back to the grapes, allowing the wine to get its delicious flavor.
Source: https://www.celebrationswineclub.com/little-known-wine-tidbits/
Screw Tops
From what I have learned over the last several years from winemakers and others, the use of the cork is, these days, solely due to the nostalgia for the old ways. The common critique of the screw top is that it does not allow the wine to age vs. the cork, which due to its cellular structure, both helps seal the wine and also allows for a certain exchange of oxygen that helps wines continue to age. Screw tops, however, can and are now being made with micro-holes in them, that actually allow for the same exchange of oxygen. Furthermore, not only is this now possible, but because the screw tops are manufactured, the exact rate of exchange can be calculated, meaning that aging wine will be much less of a crap shoot, and much more of a scientific process, for the wine makers and for the consumers. While maybe a little less romantic than going into the cellar, grabbing an old bottle, and praying to the wine gods that it is still good, a more disciplined and exact approach should make the experience better for everyone, without sacrificing the aging that some of the great wines are able to continue to do once they have been bottled. Finally, screw tops are much cheaper than corks, and so while it may currently seem to be "lower" quality, there are many advantages and limited downside (other than perceived quality) to using a screw top with aeration.
Stellenbosch - an update
Matt and I did our midterm project on the emerging wine region of Stellenbosch, South Africa. Last week I was reading the New York Times, and to my surprise I found this article about Stellenbosch, its wine, and its pivotal role in South African politics: https://www.nytimes.com/2019/03/09/world/africa/stellenbosch-south-africa.html
It turns out Stellenbosch is an independent region that is dominated by rich white Afrikaners who own the wineries and tend to associate with the far right wing of politics in that country. They have enjoyed a life of good education (Stellenbosch is home to one of South Aftrica's most elite universities), Pinotage, and relative luxury. Until recently. Lately, their countrymen from the Eastern Cape Province, a mostly black and impoverished neighboring district, have migrated to Stellenbosch and begun erecting shanty towns on the winery land in an attempt to claim it for their own. The movement is being led by a man who goes by the name "Madiba" (like Nelson Mandela before him). The settlers have run out of options and land in the region where they came from, but the Afrikaners believe they are invading the territory as a political plot to overwhelm the vote and change the current vote. What makes it more interesting, and controversial, is that much of the land was granted to the Afikaners in long term leases by their pro-apartheid prime minister days before Mandela worked the deal to end apartheid. Furthermore, much of that land is actually publicly owned, but is on 50 or 100 year leases to the winery owners. This leads the settlers to believe they have a right to the land as it was granted improperly and should be available for public needs, but the government has been hesitant to be seen instituting land grabs, leaving the situation at a painful standstill.
As it stands, the environment is very tense, with the squatters unwilling to move, and at times becoming violent. The man they called Madiba spent six weeks in jail over an incident in which protesters threw bricks at the municipal building. The Afrikaners are considering selling parts of their land where the shanty towns have sprung up to avoid further violence, but there does not seem to be a resolution yet. Overall, this is a much more nuanced and updated view of the political situation surrounding Stellenbosch than our midterm research or presentation discussed, and provides an important consideration before any tourist makes Stellenbosch their next wine destination.
It turns out Stellenbosch is an independent region that is dominated by rich white Afrikaners who own the wineries and tend to associate with the far right wing of politics in that country. They have enjoyed a life of good education (Stellenbosch is home to one of South Aftrica's most elite universities), Pinotage, and relative luxury. Until recently. Lately, their countrymen from the Eastern Cape Province, a mostly black and impoverished neighboring district, have migrated to Stellenbosch and begun erecting shanty towns on the winery land in an attempt to claim it for their own. The movement is being led by a man who goes by the name "Madiba" (like Nelson Mandela before him). The settlers have run out of options and land in the region where they came from, but the Afrikaners believe they are invading the territory as a political plot to overwhelm the vote and change the current vote. What makes it more interesting, and controversial, is that much of the land was granted to the Afikaners in long term leases by their pro-apartheid prime minister days before Mandela worked the deal to end apartheid. Furthermore, much of that land is actually publicly owned, but is on 50 or 100 year leases to the winery owners. This leads the settlers to believe they have a right to the land as it was granted improperly and should be available for public needs, but the government has been hesitant to be seen instituting land grabs, leaving the situation at a painful standstill.
As it stands, the environment is very tense, with the squatters unwilling to move, and at times becoming violent. The man they called Madiba spent six weeks in jail over an incident in which protesters threw bricks at the municipal building. The Afrikaners are considering selling parts of their land where the shanty towns have sprung up to avoid further violence, but there does not seem to be a resolution yet. Overall, this is a much more nuanced and updated view of the political situation surrounding Stellenbosch than our midterm research or presentation discussed, and provides an important consideration before any tourist makes Stellenbosch their next wine destination.
WineInStyle
Selling the company, particularly to unknown investors comes with several risks. In order to determine whether or not Eberhart should sell, there are a few things that would be necessary to know about him, and, if he wanted to sell the company, about structuring the deal.
First, Eberhart probably should not have brought on the young new investors, who pushed for the new CEO, which also came with a desire to grow more quickly (or at least not brought on the CEO when the business was growing well already). While a standard playbook, it was clear (at least from the case) that the CEO, while experienced in growing a large brand in Japan, didnt have the dedication to the business to attract the right customers or grow the business organically. As such, by the end of 2006, the business was facing a precarious cash situation, that by 2007 was forcing Eberhart to consider selling the business to unknown investors.
For Eberhart, he first has to think about whether or not he wants to continue to own the business, and thereby be willing to potentially jump back in to more active management, or if he would rather sell the business and walk away with his share. If he really cared about the future of the company, he should probably not sell the business, but if he wanted to spend more time with his family and was comfortable with selling the business with the hope that with new investors, Khoo could grow the business, then a sale might be right.
Once Eberhart had made the decision of sale or no sale, he would have to be very careful about structuring the transaction properly. Given there is limited information about the new Japanese investor group, he should require a wire for a fairly large percentage of the company with the remainder to be placed in escrow pending final diligence. The key would be to make sure the money was already transfered (and preferably into a legitimate institution), such that as long as Eberhart and the company approved the sale post diligence, the purchase consideration would be immediately transfered.
All this to say, that based on the information provided it feels like Eberhart is less engaged with the business, should agree to sell, but should not make it immediate (or at least request the consideration be placed in escrow with limited recourse for recall by the new investors).
First, Eberhart probably should not have brought on the young new investors, who pushed for the new CEO, which also came with a desire to grow more quickly (or at least not brought on the CEO when the business was growing well already). While a standard playbook, it was clear (at least from the case) that the CEO, while experienced in growing a large brand in Japan, didnt have the dedication to the business to attract the right customers or grow the business organically. As such, by the end of 2006, the business was facing a precarious cash situation, that by 2007 was forcing Eberhart to consider selling the business to unknown investors.
For Eberhart, he first has to think about whether or not he wants to continue to own the business, and thereby be willing to potentially jump back in to more active management, or if he would rather sell the business and walk away with his share. If he really cared about the future of the company, he should probably not sell the business, but if he wanted to spend more time with his family and was comfortable with selling the business with the hope that with new investors, Khoo could grow the business, then a sale might be right.
Once Eberhart had made the decision of sale or no sale, he would have to be very careful about structuring the transaction properly. Given there is limited information about the new Japanese investor group, he should require a wire for a fairly large percentage of the company with the remainder to be placed in escrow pending final diligence. The key would be to make sure the money was already transfered (and preferably into a legitimate institution), such that as long as Eberhart and the company approved the sale post diligence, the purchase consideration would be immediately transfered.
All this to say, that based on the information provided it feels like Eberhart is less engaged with the business, should agree to sell, but should not make it immediate (or at least request the consideration be placed in escrow with limited recourse for recall by the new investors).
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