For French Ce Os, The Bouquet Of Bordeaux Is Fading

Companies are unloading their trophy vineyards

As a waiter fills guests' glasses with a luscious Bordeaux, Andre Levy-Lang--hosting a lunch in his Paris executive dining room--smiles shyly. "It's one of ours," says the chairman of the management board at Compagnie Financiere de Paribas. But lest lunch guests at his investment firm get the wrong idea, he quickly adds: "Our vineyards have been a very profitable investment." For Levy-Lang, ownership of eight Bordeaux wineries is no ego trip.

The same can't be said for all French companies. For a decade, the fashionable acquisition for the company that has everything has been a Bordeaux chateau--better still, three or four. Banks and insurers, the biggest buyers, view them as real estate investments like any other. But critics consider "house wines" as little more than corporate trophies. For many French executives, "they symbolize success," says insurance analyst Jean-Baptiste Bellon of Deutsche Morgan Grenfell in Paris.

Now, France's morose economy has many CEOs wondering why they--or more likely, their predecessors--put scarce capital to toil in vineyards. At telecom giant Alcatel Alsthom, whose ex-CEO, Pierre Suard, bought Chateau Gruaud-Larose only two years ago, successor Serge Tchuruk now plans to sell it along with another Bordeaux chateau.

Similarly, a new boss at investment firm Compagnie de Suez is paring down to a few core sectors and seems likely to put its seven vineyards on the block. "They're definitely not a strategic part of our business," says a Suez official. Insurer AGF may also dump its two Bordeaux chateaus. The company bought them in the mid-1980s simply because "it was the fashion of the moment," says an AGF executive.

The craze seemed to make sense. As world wine consumption grew, so did vineyard prices in Bordeaux, the region known for high-quality reds. Land in the Medoc that fetched $9,000 a hectare in 1974 hit $40,000 in 1984 and peaked at $140,000 in 1993. Many families sold off vineyards when heirs needed cash to pay France's 40% inheritance tax. Buyers were often financial institutions that figured the market would keep bidding vineyard prices up. But bad harvests and weak economies since 1993 have led even Bordeaux real estate to plunge by up to 50%.

Corporate exits from vineyards delight traditional family vintners. "Companies just want to increase production to boost their returns," claims Jean Hugel, head of Hugel & Fils, an Alsatian producer. "The wines are never the same again." Hugel and colleagues have formed a global association of 12 big family vineyards, Primum Familiae Vini. Members include California's Robert Mondavi. In France, the group is lobbying for relief from the inheritance tax so families are not forced to sell.

PAYING RETAIL. In fairness, institutions are modest players, producing less than 5% of Bordeaux's output. And some have brought value to the vines. Paribas rebuilt the wine cellars at Mestrezat et Domaines, a Bordeaux property bought in 1986. One day, it hopes to take this reborn winery public--a first for France. Having begun buying vineyards in the 1970s, when prices were low, Paribas gets an average 15% return on its investment. "That's not such a dumb business for a financial institution," says Jean-Paul Sabet, who manages the wine portfolio at Paribas.

Insurer Axa has also prospered. It rivals Paribas as the biggest institutional investor in Bordeaux wineries, with mostly profitable holdings, including Chateau Pichon-Longueville-Baron, that are worth a total of $200 million. Axa is building conference centers at two vineyards--with 100 bedrooms--where it will train employees from its global empire, including Equitable Life Assurance. Cynics call Bordeaux a playground for Axa's wine-loving CEO, Claude Bebear. But Jean-Michel Cazes, a veteran vintner who runs Axa's wine unit, says Axa has a deep commitment to wine and may buy some of the vineyards that its disillusioned rivals now want to sell.

Such sell-offs won't help morale at vineyard-owning companies. Most of them give discounts to employees on house wines, at least once a year. "That has been very popular here," says a spokesman at Alcatel. Paying retail may come as a shock. Yet Alcatel's employees might consider lifting a glass to their new CEO anyway, for dumping a rather pointless investment.

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