Chapter 134: Merger (1)
TL: Hanguk
“I won’t need to walk you through the soil conditions or the rest, you’ll know them well enough already, since it’s quite similar to Redwood here. And with it sitting so close by, it makes for ideal conditions if you’re looking to expand.”
He had a point. If the farms were scattered all over the place, just managing the workers would be a headache, and since each vineyard had a different terroir that called for slightly different growing methods, the winemaking would demand that much more attention too.
“And the price?”
“Five point eight million dollars.”
I frowned right away.
“That’s not exactly cheap, is it? There must be quite a lot of wine stored at the winery. What about that?”
Ben furrowed his brow a little, looking troubled.
“When you acquire a winery, it’s generally standard to take on all the wine kept in the cellar as well. Inventory is usually recorded on the books as an Inventory Asset, and the wine still being made, whether it’s in tanks or barrels, is counted as Work in Progress (WIP). Taking on everything does make the accounting simpler. But that doesn’t mean every winery is acquired that way, which is exactly the point of your question, Mr. Brian.”
“Right. When I acquired Ironwood Cellars before, there wasn’t much, so I took it all, but this time it feels like it’d be a bit much. I heard Silveroak made quite a lot.”
“That’s right. In cases like this, there’s something called an Asset Purchase Agreement, or APA, where you acquire only the facilities, land, and equipment, and exclude the inventory. That means leaving out not just the bottled wine but the wine in the tanks and barrels as well.”
“Hmm... that’s a little...”
When I tilted my head, Ben gave a slight smile.
“It is, isn’t it? The downside is that you can’t use the winery until every last tank has been emptied. For situations like this, there’s a hybrid structure: you exclude the bottled wine (ex-bottle) but include the wine in the barrels and the wine still fermenting (WIP).”
“And if we go that route?”
“That part needs to be negotiated, so it’s hard for me to give you a figure right now. Silveroak might want to exclude the tanks and keep the barrels, for instance... there are all kinds of arrangements possible.”
“What I’d want is to acquire the whole winery for six and a half million dollars. I’m fine with the original owner taking the barrels.”
“So you’re willing to give up the barrels and secure everything else, the tanks and all the facilities included?”
“Exactly.”
Oak barrels were pricey enough to buy on their own, but taking them on without knowing the condition of the wine inside carried a heavy risk. And even if I had known, I didn’t have the kind of capital to shoulder all of it anyway.
“Hmm... very good.”
Ben gave a satisfied smile.
I hadn’t been greedy, I’d raised only what was necessary, and I hadn’t hammered the price down too hard either. Knowing the seller was in a difficult spot, I could have driven it lower still, but leaving that unsaid was, the way I saw it, simple courtesy to the man who had grown that vineyard.
“If the other side turns down our offer, I don’t want to force the deal through, so I’d appreciate it if you didn’t push them too hard.”
“Haha, you mean you’d like to acquire it on good terms since they’re your neighbors? Honestly, I don’t care for that kind of dealing myself. I want both sides to walk away satisfied once it’s done.”
“That’s a relief. Let’s do it that way, then.”
“There’s one thing I’d like to ask, though... how are you planning to finance the acquisition...? The thing is, the banks right now will avoid lending if they possibly can. And even if they do lend, the interest rate is going to be extremely high.”
“Up to six and a half million, I can manage it without a loan.”
At that, Ben looked rather astonished.
“Ah... I see. That’s good to hear, hahaha...”
It was understandable. From the outside this was just a small, fifteen-acre winery, and the idea that we had six and a half million dollars sitting around as spare capital would be hard for anyone to picture.
He rose from his seat, straightened his suit, and held out his hand.
“It’s been an honor to meet you today.”
After Ben Lowell offered that courteous farewell and left, Dad spoke.
“So this is what we end up spending all that money we’ve been setting aside on.”
“If we’d tried to buy that farm under normal circumstances, there’s no way that money would ever have been enough.”
“Still, we paid a pretty steep price, didn’t we? Five point eight million just for the land. That’s almost two hundred thousand dollars an acre.”
“True. Honestly, I could’ve haggled it down further, but they’re our neighbors, and it really is hard to buy the farm right next door for the same price as any other plot...”
“You’re right about that. When it’s time to spend, you spend big. Try to pinch pennies at a moment like this and you’ll lose something far bigger.”
Having Dad praise me and tell me I’d done well left me feeling even better than I had any right to. Pleased at the thought of expanding the farm, Dad called Mom and told her to fix up some anju. It looked like my parents would be having another drink before bed tonight. [TL: anju refers to snacks or dishes eaten alongside alcohol.]
When I stepped into the aging cellar, Warren asked with a deliberately curious look.
“So what listings did that lawyer bring you?”
“He brought three farms: Spring Mountain, Oxbow, and Silveroak right next door.”
“All names I’ve heard of. They must’ve been pretty pricey.”
“The one I liked was Silveroak, but they were asking five point eight million for the land alone. I told him to negotiate for the whole thing, winery equipment included, at six and a half million for now.”
“Six and a half million? How big is it?”
“Thirty-two acres.”
“Not exactly a steal, then.”
“No. But the land is good, so...”
Warren nodded and said in a probing tone.
“Still, that’s a fair bit of money to take on. Do you actually have it?”
“Why? Afraid I don’t?”
When I asked back with a laugh, he took a sip of the blended wine and said,
“If you’re short, I figured I could lend you some, that’s all.”
“No need. I’ve got exactly six and a half million.”
Like Ben, Warren looked a little surprised.
“You’ve saved up that much? Without a loan?”
“You’ve seen our cellar, how there’s barely any stock.”
“True... you almost never see a winery with a cellar as empty as yours. I was pretty stunned myself the first time I saw it. So if you do acquire the place, what’ll you do with it? Surely the Master already has it all worked out.”
“Nothing major yet... First I’d need to look at the state of the soil and the vines. If the vines are fine but there’s a problem with the soil, I’d amend it with biochar and mycorrhiza, and if the vines are bad too, then...”
“You’re thinking of plowing the whole thing under?”
“That’s not off the table. It’d be a shame... but cultivating a terroir similar to the existing Silveroak farm would give the whole thing a sense of consistency.”
“Oof, but then you’d be sinking money in for five years straight. Can you really manage that?”
“I can just sell other wine to cover it.”
He shook his head, looking impressed.
“You know, sometimes it seems like you’ve got no ambition at all, and then when I really think about it, your ambition is enormous. Resetting an entire vineyard is supposedly common on the premium lines, but at any ordinary scale it’s hard to pull off.”
As the 2000s set in, a reset boom of plowing under entire vineyards and replanting swept through the large wineries of Napa Valley. There were a few reasons for this. One was that grapevines, once they aged past twenty or thirty years, began to lose quality. Some claimed that old vines produced superior quality, but that held true only by Mediterranean and European old-vine standards.
Another reason was that AXR1, the rootstock widely planted across Napa in the 1970s and ’80s, had revealed a fatal flaw: it had no resistance to the grapevine pest phylloxera. Since the problem dragged on into the 2000s and beyond, the more upscale a winery was, the more it joined the replanting boom to be rid of the rootstock issue once and for all.
“Silveroak would come to fifty acres in total. Part of me wants to do Redwood as well, but that just feels like too much...”
“That would be overdoing it.”
“That’s what I’m saying. So I’ll look at the condition first and decide from there.”
“Remarkable... Thirty-two acres could be making thousands of cases of wine to sell right now, and yet you talk about giving that up for five whole years like it’s nothing.”
“It’s not decided yet, I told you.”
But the look in Warren’s eyes was as full of anticipation as a child the night before a picnic. He had only ever seen from the outside the way I’d rebuilt the soil on the Silveroak parcel I’d acquired earlier. This time, though, perhaps because he’d get to watch the soil-building with his own eyes, it was obvious he was hoping I’d turn the whole of Silveroak upside down.
“Six and a half million dollars?”
“Six and a half million?”
The two men reacted differently to Ben Lowell’s offer. Tom clenched both fists, his face flooding with relief, but Elowen Pike’s expression had turned grim.
“It’s true that, compared to the other farms, the per-acre price is a generous one.”
This time Ben didn’t say much, and he kept his expression even as he spoke. He knew that forcing a rosy spin on it wouldn’t make these two take it any better. If anything, he understood that the more he talked the buyer up, the more their trust in him would erode.
“It’s a good opportunity. The Napa Valley average wasn’t far off this to begin with.”
Elowen nodded at Tom’s words.
“I know that much, but... do we really have to give it up just like this?”
It was then that Ben spoke.
“I don’t believe I’ve told you everything yet.”
In an instant both men’s faces stiffened. Elowen wore a look that said, “I knew it,” while Tom frowned and asked,
“There’s more?”
“The condition they want is to not take on the inventory. They’ll acquire only the wine in the tanks, while the barrels and the bottled wine are left out of the deal.”
At that, Tom’s face actually brightened.
“Sounds like the buyer doesn’t have much cash, then?”
“It would seem so... With the inventory being as large as it is, I think it’s more than he wants to take on.”
Tom grasped Elowen’s arm and spoke hopefully.
“This is our chance! If we just unload all the stored wine, we can land a decent farm again, maybe not in Napa Valley, but in Sonoma at least.”
“You think we can?”
“If the buyer took the wine, we’d only get a fraction of the sales, but if we sell it ourselves, every bit of it is profit. I actually think this is a good opportunity. And given Elaina’s reputation, we could have it all cleared out by the first half of next year. If that happens...”
“Yeah, if that happens, we could pick up a decent farm in Sonoma.”
It wasn’t an entirely far-fetched idea. The quality of the wine they made was nothing to scoff at, and Elaina still had enough of a public profile to turn up on television now and then.
Even if it came down to going on a home-shopping channel and clearing it all out at a discount, they’d take a heavy loss, but they figured they could still walk away with a sizable amount of cash.
“What if we just don’t sell?”
Tom looked at the once-again-hesitating Elowen with a pained expression.
“We don’t have the operating capital. If the subprime crisis keeps the distributors strapped for cash through the middle of next year...”
It wasn’t as though Elowen didn’t know that. Still, he turned it over once more, wondering if they might somehow hold out, but the cool-headed Tom gave him no room. As both partner and investor, Tom knew just how favorable this offer was, and he had no intention of gambling.
“Haah... I suppose there’s no other choice. I’ll accept the terms, six and a half million, facilities and all.”
“You’ve made the right choice.”
*****
Join our Discord for announcements or to report any mistakes.