Major Financial Operations in Cava May Provoke Important Consequences

18th July 2018


Back in 2012, the German alimentary giant, Henkell, made a ‘modest’ investment, taking control of the Cavas Hill winery near Vilafranca del Penedés. Until that time, virtually all of the more than 200 Cava producers were in effect, family owned and operated. Cavas Hill, one of the historic Cava makers had experienced economic fluctuations for some time and the Henkell investment solved these problems. While the German owners did influence to some degree the winery’s operations, Hill maintained its production and marketing principles.

In 2017, a Holland-based capital investment firm acquired the Juvé & Camps winery for some 80 Million Euros, becoming the in-fact owners of this very reputed Cava and still wine maker. Again, the new proprietors ‘permitted’ the Juvé & Camps management to continue with their operational policies, including the creation of a Cava de Paratge – Specific vineyard Cava, the recently created high-end Cava category.

However, 2018 has brought on two extremely significant foreign investments in Cava. The first, after prolonged negotiations, was the acquisition of 50.7% of Freixenet by Henkell after several months of evaluations and negotiations. The operation was finalised based on the valuation of Freixenet at some 450 M Euros. For some time, a sector of the ownership of Freixenet had been trying to round-up funds in Spain in order to acquire a majority of stock in the company, but were not able to meet the guarantees required by potential financiers. The other sectors of the predominantly family-owned winery were to more or lesser degrees anxious to sell their participation. Between the major and minor shareholders, there are less than sixty people, eight principals, mostly in senior management positions and at ages of 70 or more years, and their descendants. For several years, the Freixenet group which includes the Freixenet, Castellblanc, Segura Viudas, René Barbier, Conde de Caralt, Canals & Nubiola and several other specific brands, has been the undisputed leader in overall Cava production and sales, both nationwide and worldwide.

In July this year, the multinational investment group, Carlyle, finalized their negotiations with the management of Codorniu, with the investment of 390 M Euros which includes 90 M Euros dedicated to cover Codorniu’s accumulated debts. This operation was extremely complex as there were more than 200 major and minor shareholders, nearly all descendants of the winery’s founders. Codorniu had also been searching for financial alleviation for a long time. Codorniu is the second most important group of Cava producers with nearly 50 M bottles of Cava under the Codorniu, Rondel, Raimat, Masía Bach and Royal Carlton labels. However, this is less than one half of Freixenet’s total production. What remains to be seen in the immediate future is what major and minor changes will be introduced by the new, foreign management groups.

Another significant movement in the Cava sector is the forthcoming renovation of the Consejo Regulador – Regulatory Board, of the Cava denomination of origin (D.O.). The Cava production spectrum is unique, not only to Spain but probably worldwide, in that Cava production is not limited to one specific geographic area, but is spread out over eleven provinces in seven of the country’s 17 autonomous regions. Thusly, the overall control of the D.O. is the competency of the nation’s Agriculture, Fishing and Alimentation Ministry and not as with the remaining 68 D.O.’s, their respective autonomous regional governments. The incumbent President of the Cava D.O., Pedro Bonet Ferrer, has announced that he will not present his candidacy for re-election, paving the way for a new President and several components of the Regulatory Board. The candidate most likely to succeed Bonet is Javier Pagés until now the General Manager of Codorniu.

Over the last several years a ‘critical’ situation has affected the Cava sector in general, a kind of price war between certain Cava producers that has created a ‘competition’ to find who can produce and sell the most inexpensive (no inference to the cheapest) Cava. This has led some fairly large producers as well as a few mid-range ones to elaborate and market products at prices inferior to real production costs.
While neither Freixenet nor Codorniu participated in this price cutting, it did have an overall negative effect on the Cava sector in general. In fact, both Freixenet and Codorniu had recently quit producing Cava for ‘white labels’.

What will happen during the next few months and years is anyone’s guess. A great number of Cava consumers around the world have become accustomed to buying and drinking the low-cost Cavas. If the intentions of many Cava producers directed against these low-cost brands succeed and the low costs disappear, there may well be more upheavals in Cava country.

Shared by George Potter


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