While we were on vacation, Ste. Michelle Wine Estates was sold by Altria, the huge tobacco firm, to Sycamore Partners Management, a private equity firm specializing in consumer, retail, and distribution investments. The transaction is an all-cash, $1.2 billion deal plus assumption of some debt.
Altria said it expects the sale to close during the second half. As is typical in private-equity deals, Sycamore apparently doesn’t have the cash on hand, because the sale announcement says it is subject to Sycamore Partners “obtaining the necessary financing.”
Altria said it will use the net proceeds “for share buybacks to boost shareholders’ wealth.” Sycamore will undoubtedly load the company with debt. Sycamore also said the transaction is subject to antitrust regulatory clearance.
The sale of Ste. Michelle is part of Altria’s plan “to transition adult smokers from cigarettes to potentially less harmful choices.”
That’s corporate spin. The plain truth is Ste. Michelle may make good wine, but it has trouble selling it. It wrote off $292 million in unsellable wine inventory and saw its sales slip even farther last year, dropping 11%.
Ste Michelle posted a $360 million in 2020, which paled compared to the $4.1 billion that Altria had to write off from its investment in Juul, the tobacco vaping device. TedBaseler, Ste. Michelle’s longtime CEO, took early retirement in 2018. His replacement, a human resources executive, was ousted in November 2020, replaced by David Dearie, the former Treasury Wine Estates CEO who was forced to destroy $35 million in cheap TWE wine. Ste. Michelle’s longtime head winemaker, Bob Bertheau, was dumped in February along with other employees.