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Published:  23 July, 2008

Spirits giant Diageo has outbid premium wine group Domaines Barons de Rothschild (DBR) to take over California's Chalone Wine Group. Diageo's victory scuppers DBR's proposed deal with Constellation Wines and the Chilean Huneeus family to create a super-premium Californian brand to rival Opus One. Constellation was to pay $52 million in cash and contribute its Oakville vineyard, while the Huneeus family was to contribute its Quintessa winery in Napa. DBR, which already owned 46% of Chalone, had a bid of $11.7 dollars a share accepted by Chalone's board last November, with the deal including a break clause if a higher offer came in. Diageo duly offered $13.75 a share, valuing the company at $260 million dollars. The UK-based giant now has to pay DRB a termination fee of $2.5 million. Constellation would appear to have lost least from the collapse of the deal with DBR, as since striking the agreement with the French wine company, it has purchased the Mondavi Corporation for $1.3 billion. The deal - confirmed by shareholders last week - gives it a strong presence in the super-premium sector. A Diageo North America spokesman confirmed to the US financial press that the company had not bid for Mondavi. We have been very cautious,' she said. American super-premium wines have seen good growth and these are young brands that we can add value to. We are not going on a spending spree, but when we see something that we think is suitable, we buy it.' Diageo has been wary of the wine sector in recent years (its last purchase was in 2001), preferring to build its market-leading spirits portfolio, although it has had some recent wine success, particularly with Blossom Hill and Piat d'Or (through its UK wine arm Percy Fox). The Chalone Group's brands include Chalone, Jade Mountain and Acacia in California, and Sagelands in Washington State. Diageo currently owns Beaulieu Vineyards and Sterling Vineyards in California. The deal still needs to gain regulatory and shareholder approval.