What Happened?

Shares of wine company The Duckhorn Portfolio (NYSE:NAPA) jumped 102% in the morning session after the company reported it is being acquired in an all-cash deal for $11.10 per share (approximately $1.95 billion) by Butterfly, a private equity company focused on food and beverage investments. The acquisition price represents a 65.3% premium to Duckhorn's volume-weighted average share price over the 90-day trading period ending on October 4, 2024 (the last trading day before the deal was announced).

As for the quarter, Duckhorn blew past analysts' EPS expectations. In addition, its revenue outperformed Wall Street's estimates. The top line was driven by 23.7% volume growth following the recent acquisition of Sonoma-Cutrer Winery. This growth was partly offset by negative price/mix as the higher-priced Kosta Browne Winery release shifted to the third quarter. On the other hand, its gross margin missed analysts' expectations. Overall, this was a mixed yet decent quarter.

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What The Market Is Telling Us

Duckhorn’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. Moves this big are rare for Duckhorn and indicate this news significantly impacted the market’s perception of the business.

The biggest move we wrote about over the last year was 11 months ago when the stock dropped 15.3% 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.

Duckhorn is up 8.6% since the beginning of the year, and at $10.94 per share, has set a new 52-week high. Investors who bought $1,000 worth of Duckhorn’s shares at the IPO in March 2021 would now be looking at an investment worth $636.50.

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