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WINERY PURCHASE IS NO DRY DEAL Kendall-Jackson Wine Estates’ $97 million purchase of three California wineries gave the lawyers involved a glimpse into the workings of the wine world. “It’s always fun to deal in a sexy industry,” said Peter Gilhuly, a Latham & Watkins partner based in Los Angeles who represented Kendall-Jackson. “The neat thing about being a bankruptcy lawyer is you get to look into these industries � I learned a lot about the economy of wine.” The parent entity, Napa-based Legacy Estates Group, had been under Chapter 11 bankruptcy protection since November, after it defaulted on debt payments. Thus began a lengthy legal process which culminated in an August auction. Money wasn’t the only factor at play in the bidding � the offers were contingent on buying out a contract with distributor Wilson Daniels, a company with whom Legacy had an unfinished deal. At first it appeared Kendall-Jackson’s higher bid might be rejected because it already had its own distributor, but the company was able to negotiate a solution with Wilson Daniels and secured the bid. “It was a long and complicated auction to get to the point where everyone knew which was a better deal,” Gilhuly said. Legacy’s holdings include Napa’s Freemark Abbey Winery, Sonoma County’s Arrowood Vineyards & Winery and Santa Barbara’s Byron Vineyard & Winery. Gilhuly found it interesting to represent old time wine pro Jess Jackson of Kendall-Jackson, who was competing for the purchase with investors who had money, but not the wine know-how. Financial bidders such as private equity groups needed to link up with a wine operator who was familiar with the logistics of winemaking, including the not so glamorous aspects � i.e., the actual farming. “This was an example of the phenomenon where a very shrewd operator in the business can make more value out of the situation than someone who is simply paying for assets in a vacuum,” Gilhuly said. “The operations are complex and success depends on how well you can operate � you can’t just show up with a lot of money.” A month before the auction Legacy set the rules, including a $1.5 million deposit for bidders, a qualification Legacy’s attorney John Murray called “a weeding-out process.” Eventually, the lengthy bidding process came down to Kendall-Jackson and FAB Acquisition Co. LLC, a group organized by the Huneeus family, owner of Quintessa winery in Napa, and private equity financier Bill Price. The two bidders went back and forth in the bankruptcy court in Santa Rosa, negotiating in the hallways over the course of a full day � a process closely followed by the wine press. Since a nearly $100 million deal is big news in the wine business, media gossip was pronounced, and it included leaks that gave the deal a spicy bouquet. “It’s a very small subculture and it’s prone to a lot of gossip,” Murray said. Murray agreed with Latham’s Gilhuly � it was fun to be privy to the industry’s inter workings: “I enjoyed the exposure to the wine industry � there are lots of colorful personalities,” Murray said. Latham’s team included Los Angeles partners Gilhuly, David Taub and Marcus McDaniel; Los Angeles associates Alan Leavitt and James Dillavou; San Francisco partner Jeffrey Pero; and Washington, D.C., partner Michael Egge and of counsel Sydney Smith. Murray & Murray represented the debtor, The Legacy Estate Group, with its Cupertino-based attorneys Murray, Robert Franklin, Doris Kaelin, Cheryl Jordan and Matthew Taylor. Morrison & Foerster also representing The Legacy Estate Group with San Francisco partners Adam Lewis, Jill Feldman, Michael O’Bryan, and San Francisco associate Clare Badaracco. Lynne Carmichael, a partner with Hinman & Carmichael in San Francisco, worked on the California alcohol and beverage laws. Winston & Strawn represented the Official Committee of Unsecured Creditors, which was formed at the beginning of the Legacy bankruptcy case. Committee attorneys involved included San Francisco partner David Honig and the firm’s local co-counsel, John MacConaghy of MacConaghy & Barnier, which has its office in Sonoma.

� Kellie Schmitt

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