The Beringer IPO

Building on our discussion with Pete Mondavi, Jr. in class on Friday, I thought I'd investigate another prominent IPO that happened a few years later - Beringer Wine Estates. Beringer issued its initial public offering in October of 1997 and was listed under BERW on the Nasdaq. The company issued 5.1 million shares at $26 per share and raised roughly $132 million (pre-expenses) and $120 million post expenses. Most of the proceeds from the offering were used to retire the company's debt (approximately $130 million of debt remained outstanding).

The offering was met with very strong demand, pricing at the top of the range ($23 - $26) and offering 5.1 million shares versus the 4.85 million shares originally planned. Reading the article in the NY Times, the tone is clearly enthusiastic with investors' expressing excitement over having the opportunity to invest in a "pure play in wine", despite concerns raised by the Mondavi offering over inventory and phylloxera (which Beringer's crop was also affected by).

Prior to its IPO, Beringer was purchased from Nestle by TPG and Silverado Partners for $350 million. The winery was founded in 1876 and was family owned until being acquired by Nestle in 1971. Its private equity ownership explains the significant leverage taken on by the company.

After a significant run-up in the stock price through March of 1998, it traded down to IPO levels that summer and continued to fluctuate between the $30 - $45 range until it was finally acquired by Foster's for $1.17 bn in August of 2000 for a 25% premium.

Overall, this was not a successful IPO transaction, and the IPO likely hindered the company's growth. Public investors weren't able to fully appreciate the cyclicality as well as the long WIP inventory needs of the business. Because of the underperformance of the stock price, Beringer was unable to pursue its intended growth strategy (primarily acquisitions). The merger, on the other hand, allowed Beringer to expand into international markets and allowed Foster's to gain a distribution foothold in North America. While it is difficult to know if possible buyers were available at the time of the IPO, we have here another case in which alternative sources of capital (not the public markets), would likely have been better for the growth of the business.

Sources: http://www.nytimes.com/1997/10/26/business/at-the-gate-an-initial-public-decanting-for-a-top-california-vintner.html
http://www.nasdaq.com/markets/ipos/company/beringer-wine-estates-holdings-inc-8253-9289
http://www.wsj.com/articles/SB967515354936886919
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