“You don’t need me to tell you about the soil conditions or anything else. I’m sure you already know them well. They’re quite similar to Redwood here. And since it’s right next door, the conditions are ideal if you’re looking to expand.”
As he said, if the farms were scattered here and there in every direction, managing workers would be one thing, but the terroir would differ from vineyard to vineyard, requiring slight changes in farming methods and inevitably giving us more to worry about in winemaking.
“What’s the price?”
“5.8 million dollars.”
I immediately frowned.
“That’s not cheap, is it? There must be quite a lot of wine stored at the winery. What about that?”
Ben furrowed his brow slightly, looking troubled.
“When acquiring a winery, it is common to acquire all the wine stored in the warehouse as well. Inventory is usually recorded on the books as an Inventory Asset, and wine still being vinified in tanks or barrels is included as Work in Progress, or WIP. If you acquire everything, the calculations do become simpler. However, as your question suggests, not every winery is acquired that way.”
“Exactly. When I acquired Ironwood Cellars before, there wasn’t that much, so I acquired it all, but this time I think it might be a bit much. I heard Silver Oak produced quite a lot.”
“That’s right. In cases like this, there is something called an Asset Purchase Agreement, or APA, where you acquire only the facilities, land, and equipment, excluding the inventory. That means excluding not only the bottled wine, but also the wine in tanks and barrels.”
“Hmm... That’s a bit...”
When I tilted my head, Ben smiled faintly.
“Right? In that case, there’s the drawback that you can’t use the winery until all the tanks have been emptied. At times like this, a Hybrid structure is used, where bottled wine, or ex-bottle, is excluded, while barrel-aged wine or wine in fermentation, the WIP, is included.”
“If we did that?”
“That part would need to be negotiated, so it’s difficult to give you a figure right now. Silver Oak might exclude the tanks and take the barrels with them... There are various ways to handle it.”
“For my part, I’d like to acquire the winery as well for 6.5 million dollars. I don’t mind if the original owner takes the barrels.”
“So you’re willing to concede the barrels, but you want to secure all the facilities, including the tanks?”
“That’s right.”
Oak barrels were quite expensive to buy, but acquiring them without knowing the condition of the wine inside was too risky. Even if I did know, I didn’t have enough funds to take on all of that.
“Hmm... Very good.”
Ben smiled with satisfaction.
I hadn’t been too greedy, had only mentioned what I truly needed, and hadn’t tried to slash the price too much. If I knew the other party was in a bad situation, I could have pushed the price down further, but not bringing that up was probably a matter of courtesy toward the farm owner who had cultivated that vineyard.
“If the other side rejects our offer, I don’t want to force the deal through, so I’d prefer you not pressure them too much.”
“Haha, you mean you want to acquire it on good terms because they’re neighbors? To be honest, I don’t like doing business that way either. I want both sides to be satisfied after the deal is done.”
“That’s a relief. Then let’s proceed that way.”
“There is one thing I’d like to ask... How do you plan to fund the acquisition...? I ask because banks are likely to be reluctant to lend these days unless absolutely necessary. Even if they do, the interest rate will probably be very high.”
“I can manage up to 6.5 million dollars without a loan.”
At my words, Ben looked quite surprised.
“Ah... I see. That’s a relief, hahaha...”
It was understandable. From the outside, it would be hard to imagine that this small, barely fifteen-acre winery had 6.5 million dollars in spare funds.
He rose from his seat, straightened his suit, and held out his hand.
“It was an honor to meet you today.”
After Ben Lowell left with that polite farewell, Dad said,
“So the money you’ve been saving all this time is going to be used like this.”
“If we’d tried to buy that farm under normal circumstances, we never could’ve gotten it for that money.”
“Still, we’re paying quite a lot, aren’t we? If the land alone is 5.8 million dollars, that’s almost 200,000 dollars per acre.”
“That’s true. Honestly, I could’ve tried to push it down further, but we’re neighbors, and it really is difficult to buy the farm right next door for a price comparable to other farms...”
“You’re right about that. When it’s time to spend money, you have to spend it boldly. If you try to save at a time like this, you’ll lose something even bigger.”
Dad praised me, saying I had done well, and for some reason that made me feel even better. Excited about expanding the farm, Dad called Mom and told her to prepare some side dishes to go with drinks. It seemed my parents would be having another drink tonight before bed.
When I entered the aging room, Warren asked with a deliberately curious look.
“What kind of properties did that lawyer bring?”
“He brought three farms. Spring Mountain, Oxbow, and Silver Oak next door.”
“Names I’ve heard of. They must have been fairly expensive.”
“The one I liked was Silver Oak, but they were asking 5.8 million dollars for the farm alone. I told him to negotiate for 6.5 million dollars, including the winery facilities.”
“6.5 million dollars? How big is it?”
“Thirty-two acres.”
“That’s not exactly cheap, then.”
“Right. But the land is good...”
Warren nodded and spoke in a subtle tone.
“Still, that’s a considerable burden. Do you have the money?”
“Why? Are you worried I don’t?”
When I asked back with a smile, he took a sip of the wine he had blended and said,
“I was thinking I might be able to lend you some if you were short.”
“No need. I have exactly enough up to 6.5 million dollars.”
Like Ben, Warren looked slightly surprised.
“You saved up that much? Without a loan?”
“You saw our warehouse. There’s almost no inventory.”
“That’s true... There are hardly any wineries with warehouses as empty as this one. I was pretty shocked when I first saw it too. If you do acquire it, what are you planning to do? I’m sure the master has it all thought out.”
“I don’t have any grand plan yet... First, I think I’ll need to check the condition of the soil and the vines. If the vines are fine but the soil has problems, I’ll supplement it with biochar and mycorrhizae. If the vines have problems too...”
“Are you thinking of tearing it all up?”
“That thought isn’t entirely absent. It’d be a waste, but... creating a terroir similar to the existing Silver Oak farm would provide consistency.”
“Oof. Then you’d have to do nothing but invest for five years. Can you handle that?”
“We can sell other wine in the meantime.”
He shook his head with an amazed expression.
“When I look at you, you seem like you don’t have much greed, but when I think about it more deeply, your ambition is incredible. Resetting an entire vineyard is common in premium lines, but it’s hard to do at an ordinary scale.”
Entering the 2000s, a reset boom began around the large wineries of Napa Valley, with entire vineyards being torn up and replanted. There were several reasons for this, one of which was that grapevines begin to decline in quality once they grow old after twenty to thirty years. Some say Old Vines produce good quality, but that is based on Mediterranean and European standards for old vines.
Another reason was the fatal flaw discovered in AXR1, a rootstock widely planted in Napa during the 1970s and 1980s: it lacked resistance to the grapevine pest phylloxera. Since that problem continued even after the 2000s, the more high-end a winery was, the more the replanting boom spread in order to completely resolve the rootstock issue.
“Silver Oak would become fifty acres in total. If I had my way, I’d like to do Redwood too, but that feels like too much greed...”
“That would be excessive.”
“Exactly. So I’ll decide after checking the condition.”
“Incredible... Thirty-two acres means you could immediately make and sell thousands of cases of wine, yet you say so easily that you’d give that up for five years.”
“I haven’t decided yet.”
But Warren’s eyes were brimming with anticipation, like a child the day before a picnic. He had only seen from the outside how I had newly prepared the soil on the Silver Oak farm site we had acquired before. But perhaps because this time he would be able to see the soil preparation with his own eyes, he clearly hoped I would overturn all of Silver Oak.
---
“6.5 million dollars?”
“6.5 million dollars?”
The two people who heard Ben Lowell’s proposal reacted differently. Tom clenched both fists, looking as if he had been saved, while Elowen Pike’s face turned bleak.
“It is true that the price per acre is favorable compared to other farms.”
This time, Ben did not say much and spoke with a calm expression. He knew that no matter how he tried to make it sound good, they would not take it positively. He also knew that the more favorably he described the buyer, the more their trust in him would fall.
“It’s a good opportunity. The average price in Napa Valley wasn’t that different from this to begin with.”
At Tom’s words, Elowen nodded as well.
“I know that, but... do we really have to give up like this?”
At that moment, Ben said,
“I don’t think I’ve told you everything yet.”
In an instant, both their faces hardened. Elowen had an expression that said, “Of course,” while Tom frowned and asked,
“What else is there?”
“The condition they want is that they will not take on the inventory. What they will acquire is only the wine in the tanks. The condition is that they will not acquire the barrels or the bottled wine.”
At those words, Tom’s face actually brightened.
“It seems the other side doesn’t have a lot of money.”
“Most likely... Since the volume of inventory is quite large, it seems burdensome to them.”
Tom touched Elowen’s arm and said hopefully,
“This is our chance! If we sell off all the wine in inventory, even if it isn’t in Napa Valley, we can get a decent farm again in Sonoma.”
“Do you think we can?”
“If the other side acquired the wine, we’d only receive a portion of the sales, but if we sell it ourselves, we can take all of it as revenue. I actually think this is a good opportunity. And considering Elaine’s reputation, we could clear everything out by the first half of next year. If that happens...”
“Yes, if that happens, we could get a suitable farm in Sonoma.”
It was not a story with no possibility at all. The quality of the wine they had made was not that poor, and Elaine still had enough recognition to appear on broadcasts from time to time.
At the very least, if they went on home shopping channels and cleared it out at a discount, they would suffer a considerable loss, but they still thought they could secure a significant amount of funds.
“What if we just don’t sell?”
Tom looked at Elowen, who was hesitating again, with a pained expression.
“We don’t have operating funds. If the distributors’ funding difficulties from the subprime crisis continue until the middle of next year...”
It was not as if Elowen did not know that. Still, she wondered once more if they might be able to endure somehow, but the coldly rational Tom left no room for it. As both partner and investor, Tom knew that this proposal was quite favorable and did not want to attempt a gamble.
“Hoo... I suppose there’s no choice. We’ll accept the terms of handing over the facilities as well for 6.5 million dollars.”
“You’ve made the right choice.”