Spinoff From Leucadia Complete, Crimson Wine Group Begins Trading Under CWGL Ticker

We wrote previously about the planned spinoff by Leucadia(LUK) of Crimson Wine Group(CWGL). There was much discussion and speculation as Lucadia’s managment are among the most successful investors of the last few decades, this was their personal project being spun off as a result of the merger with Jefferies(JEF), the distribution ratio of 1 share of CWGL for every 10 of LUK ensured that many would be left with insignificant stakes, and the fact that it would trade thinly OTC.  All of these factors imply a strong possibility that this will be misvalued out of the gate.

Yesterday, Crimson issued a press release announcing that the transaction has been completed.

Crimson Wine Group, Ltd. (“Crimson”) announced today that its spin-off from Leucadia National Corporation (“Leucadia”) had been completed.  Crimson, which held all of Leucadia’s wine operations, was distributed to Leucadia’s shareholders through a pro rata dividend of all of the shares of Crimson common stock.

Crimson is now a separate public company. Crimson’s common stock is not listed on any securities exchange. Trading in Crimson’s common stock is expected to occur on OTC Link under the symbol “CWGL.”  The CUSIP number for Crimson’s common stock is 22662X 100.

Holders of record of Leucadia’s common shares as of the close of business on February 11, 2013, the record date for the spin-off, that did not subsequently trade the entitlement to their shares of Crimson common stock, received one share of Crimson common stock for every 10 Leucadia common shares held on the record date, with cash in lieu of fractional shares to be later distributed.

The Crimson spin-off has been structured to qualify as a tax-free distribution to Leucadia and Crimson shareholders for U.S. federal income tax purposes.  Crimson stockholders are urged to consult with their tax advisors with respect to the U.S. federal, state, local and foreign tax consequences of the Crimson spin-off.

About Crimson

Crimson, a Delaware corporation, produces and sells premium, ultra-premium and luxury wines.  Crimson is headquartered in Napa, California and through its wholly-owned subsidiaries owns four wineries: Pine Ridge Vineyards, Archery Summit, Chamisal Vineyards and Seghesio Family Vineyards.

In an 8-K filed yesterday as well, Crimson revealed additional information. The company has 24.5 million shares outstanding.  Its Board and management will be as follows:

Board of Directors


Effective as of the time of the Spin-Off, the individuals identified below will serve on the board of the directors.

Name Age Director Since Position
Ian M. Cumming 72 March 1994 Chairman of the Board of Directors
Joseph S. Steinberg 68 February 2013 Director
John D. Cumming 45 February 2013 Director
Avraham M. Neikrug 43 February 2013 Director


Election of Executive Officers

Effective as of the time of the Spin-Off, the individuals below will serve as the Company’s executive officers.

Name Age Position
Erle Martin 49 President and Chief Executive Officer
Patrick M. DeLong 47 Chief Financial & Operating Officer
Mike S. Cekay 41 Senior Vice President of Global Sales
Natasha K. Hayes 41 Vice President of Marketing
Vida A. Dion 40 Vice President of Consumer Sales

On February 25, 2013, Leucadia National Corporation (“Leucadia”) filed its Annual Report on Form 10-K for the year ended December 31, 2012. Leucadia’s Report contained certain information about Crimson Wine Group, Ltd. (“Crimson” or the “Company”) that was not previously disclosed. Specifically, Note 5 to Leucadia’s consolidated financial statements disclosed that for the year ended December 31, 2012, Crimson had revenues of $48,215,000 and pre-tax income of $5,381,000.

The amounts disclosed for revenues and pre-tax income by Leucadia are determined on a different basis than the amounts that will be disclosed by Crimson when it files its Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”). With respect to revenues, Leucadia’s disclosure does not include shipping and handling charges, which are included as revenues in Crimson’s consolidated statements of operations. With respect to pre-tax income, the amount disclosed by Leucadia eliminates intercompany transactions, the largest component of which is interest expense on amounts owed to Leucadia. These intercompany transactions are reflected in Crimson’s consolidated statements of operations.

In addition, Leucadia also included disclosure under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations – Other Operations. The disclosure that relates to Crimson is aggregated with other operations of Leucadia, and as such is not presented in full below. However, the disclosure that is presented has been excerpted from Leucadia’s disclosure only to the extent it relates to Crimson:

Revenues and other income for 2012 and 2011 include $9,640,000 and $14,592,000, respectively, of increased revenues at the winery operations; substantially all of the 2012 increase and $9,628,000 of the 2011 increase results from the acquisition of Seghesio Family Vineyards in the second quarter of 2011. The change in selling, general and other expenses for 2012 and 2011 as compared to the prior year also reflects $2,138,000 and $12,152,000, respectively, of greater costs at the winery operations. Selling, general and other expenses also include charges of $1,513,000 in 2010 at the winery operations to reduce the carrying amount of wine inventory.

Crimson is currently in process of preparing its 2012 Form 10-K, which it expects to file upon completion of its annual audit during March 2013. In addition to the differences described above, amounts included in the 2012 Form 10-K could be adjusted for other reasons. Such adjustments, if any, could be material to Crimson, even if they are not material to Leucadia.

 With 24.5 million shares outstanding at the current price of $7.26 for a market cap of $178 million the company looks expensive with pre-tax income of only $5.381 million. We suspect, however, that there will be high volatility in the stock in the coming days and weeks as owners who have received the distribution take action. And betting against Cumming and Steinberg is generally a losing proposition.

Disclosure: The author holds no position in any stock mentioned

One thought on “Spinoff From Leucadia Complete, Crimson Wine Group Begins Trading Under CWGL Ticker

  1. Pat

    Trades to $8.00 on day 1 (market cap = $196MM); if we assume 34% corporate tax rate; earnings of $3.55MM that’s a PE of roughly 55. It’d have to trade down to $4.00 before it gets modestly interesting in my view.

    Can somebody tell me if we should expect institutional or fund holders to force sell on Thursday EOM to clean up books?

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