Shares of wine company The Duckhorn Portfolio (NYSE:NAPA) fell 15.3% in the morning session after the announcement of its acquisition of Sonoma-Cutrer Vineyards for around $400 million, paid in a mix of company stock and cash. Sonoma-Cutrer, a major Chardonnay winery, owns extensive vineyards and distributes its luxury wines through wholesalers and directly to consumers across the U.S. As part of the deal, Brown-Forman will receive 31.5 million shares of Duckhorn's common stock, valued at about $350 million, representing a 21.5% ownership post-closing. Additionally, Brown-Forman will receive approximately $50 million in cash, subject to certain adjustments. Sonoma-Cutrer, acquired by Brown-Forman in 1999, had approximately $84 million in sales for the twelve months ended July 31, 2023. The deal is expected to generate around $5 million in annual synergies, which will be fully realized from fiscal year 2025. The new share issuance represents roughly 30% of Duckhorn's existing outstanding shares and could have a negative impact on Duckhorn's stock price in the short term, as it could lead to dilution for existing shareholders. However, the long-term benefits of the acquisition, such as increased market share and revenue growth, could outweigh the short-term dilution effect.
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What is the market telling us:
Duckhorn's shares are not very volatile than the market average and over the last year have had only 6 moves greater than 5%. Moves this big are very rare for Duckhorn and that is indicating to us that this news had a significant impact on the market's perception of the business.
Duckhorn is down 36.3% since the beginning of the year, and at $10.36 per share it is trading 38.6% below its 52-week high of $16.86 from January 2023. Investors who bought $1,000 worth of Duckhorn's shares at the IPO in March 2021 would now be looking at an investment worth $603.03.
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