Comeback try

Wine group's new executive plans major changes for well-known labels

One of Sonoma County's largest and most beleaguered wine companies has repositioned itself and is ready for growth, according to its new chief executive officer.

"I want Ascentia to be Sonoma County's favorite son and shining star," said Mike Kenton, who was hired in January to turn around the 3-year old company.

Back in 2008, Ascentia Wine Estates appeared to be the newest powerhouse in the wine industry after a team of veteran wine executives formed the company in a complex financial deal. Ascentia pulled together a portfolio of high-profile brands, including Gary Farrell Winery, Buena Vista Carneros Winery and Geyser Peak Winery.

But the timing could not have been worse for the company, which essentially borrowed $209 million to purchase eight brands and five wineries from Constellation Brands. Within months of the deal, U.S. financial markets were in free fall and the economy dipped into a deep, long recession. Wine sales plummeted, and the company struggled to make its debt payments.

Fast-forward three years, and the Healdsburg-based company is now in the process of completing a major overhaul.

Ascentia has spent months working with its creditors, slimming down its operations and negotiating the expected sale of one of its high-profile brands, Gary Farrell Winery.

In January, the investment bankers at GESD Capital Partners in San Francisco, who provided a large portion of the initial funding to form Ascentia, announced they were bringing in Kenton as new chief executive to replace Jim DeBonis, who had spearheaded the formation of Ascentia.

Kenton, an industry veteran and Sonoma resident, in the mid-1990s helped turn around Napa-based Artesa Winery where he was chief executive until this year.

"My goal now is to make Ascentia the largest player in Sonoma County," Kenton said last week.

That accomplishment would be a sharp reversal for the company, which was sued last year by one of its investors who claimed the company was essentially broke. A judge ruled in Ascentia's favor.

"We are absolutely not going out of business," Kenton said. "I would not have taken this job if I believed that."

But he acknowledges the challenges are more difficult than at Artesa Winery, which was financially backed by one of Europe's oldest wine families. At Ascentia, he faces a far more complex situation, with large debt, internal strife with a key investor and a recently built sales team that is crucial to the company's recovery.

Kenton's expertise is on the sales side, and he is focused on building up Ascentia's sales and marketing divisions and increasing production of brands such as Buena Vista Winery and Geyser Peak. Most of the debt restructuring occurred before he was hired, he said.

Renegotiating terms
The company has spent months working with its financial backers to reduce its annual payments and decrease overhead by millions of dollars.

The largest investor in Ascentia's formation was Entertainment Properties Trust, which is a publicly traded real estate investment firm from Kansas City with $3.2 billion in assets.

Entertainment Properties agreed in 2008 to purchase four of the five wineries from Constellation, as well as 940 acres, for about $110 million and then lease the properties to Ascentia. Ascentia borrowed about $100 million from GESD Capital and others to purchase from Constellation the trademarks to the wine brands and all the inventory of unsold wine at Geyser Peak, Buena Vista and six other wine labels.

But Ascentia began missing its rent payments and by the end of last year, was behind by at least $2 million, according to public records. In January, Ascentia and Entertainment Properties agreed to an overhaul of their partnership, according to the investment company's public filings with the U.S. Securities and Exchange Commission.

Earlier this month, Ascentia announced it was moving out of its 410 acres of Carneros vineyards and a 106,000-square-foot winery that had for decades been home to Buena Vista Carneros Winery. Ascentia had been paying Entertainment Properties about $5.5 million to lease theproperty southwest of Sonoma in the Los Carneros region, according to public records. The cool growing region is highly regarded for its pinot noir and chardonnay grapes, which Buena Vista has built its reputation on.

Slimming down
The move could result in layoffs, although the process is ongoing and still being determined, Kenton said.

"We are doing our best to transition everyone we can," he said. "The others will be treated as fairly as possible."

The company already has reduced its staff from about 270 people at the time of its formation to 240 now.

Ascentia also reworked the rent for Geyser Peak Winery and Vineyards in Geyserville and its Washington-based Columbia Winery, reducing rent to $1.5 million from about $3.5 million a year, according to documents filed with the SEC.

"We worked with all of our lenders and partners, and now that stage is largely complete," Kenton said. "It was a substantial savings."

Production for Buena Vista will be moved to Geyser Peak Winery, which at 361,000 square feet is about three times larger than the Carneros facility. Ascentia also leases the 207 acres of land and vineyards around Geyser Peak Winery.

Last year, the company sold about 700,000 cases of wine across its eight brands, Kenton said.

Gary Farrell Winery
As part of its restructuring deal with Entertainment Properties, Ascentia agreed to the sale of one winery and vineyard, which three industry sources independently identified as Gary Farrell Winery.

The Healdsburg-based winery includes a 21,000-square-foot facility on 23 acres.

Kenton declined comment on any negotiations regarding the sale of the winery.

The expected buyer is The Vincraft Group, according to sources. The Sonoma investment group was founded by Walt Klenz and Pete Scott, former top executives for Beringer and the Australia-based Foster's Group, and Bill Price, who helped found the private equity firm Texas Pacific Group, now TPG. The Vincraft Group is backed by TPG, which acquired Beringer Wine Estates in 1995 for an estimated $350 million and sold it to Foster's in 2000 for $1.5 billion.

The Vincraft Group announced plans in 2009 to invest in a half-dozen wineries in the next two to three years after taking a controlling ownership stake in Kosta Browne for about $40 million that year.

Scott declined comment on Gary Farrell Winery.

Expanding its brands
Kenton said Ascentia is focusing on expanding its brands, adding varietals and new price tiers.

The Buena Vista Carneros Winery brand will now purchase grapes from across Sonoma County and drop "Carneros" from its name, although it will continue to purchase Carneros grapes and use the appellation designation on its bottles when appropriate, Kenton said.

Former chief executive DeBonis, who had overseen the Buena Vista Winery when it was owned by Allied Domecq in 2001, had decided years ago to remarket Buena Vista as a high-end and low-production wine. He slashed production by 80 percent to focus on pinot noir and chardonnay. Last year, Ascentia produced 60,000 cases of Buena Vista wine.

Kenton now plans to reverse that move and introduce other varietals and expand the brand to include different tiers of wine prices.

"The volume for Buena Vista was not acceptable," he said. "It should be a quarter-of-a-million case brand."

The company is building up its sales and marketing team, which replaced its sales partnership with New York-based W.J. Deutsch & Sons. Bill Deutsch, the sales and marketing firm's chairman, sued Ascentia last year and lost, claiming the wine company was insolvent and accused DeBonis of fraud for allegedly making "fantastical" revenue projections for the brands.

Kenton said the relationship with Deutsch, who is an investor in Ascentia, has not improved.

Now Ascentia has its own sales and marketing team of 24 people, which is expected to continue growing.

"That was built from scratch 9 months ago," Kenton said. "We are a work in progress."

And he does not shy away from the tough tasks ahead.

"Fixing something that is tarnished and making it better is what I enjoy," Kenton said. "I'm a builder. I'm a transformer. I love the process."