Margaret River wine pioneer Dr John Lagan has seen his Xanadu Wines collapse and its major assets sold to eastern states interests. In the process shareholders, his family included, have lost millions of dollars. Mark Mentiplay reports
WHEN Margaret River wine pioneer Dr John Lagan completes his memoirs next year, the saddest chapter will record the demise of his beloved Xanadu Wines, once one of Australia’s premier winemakers.
Over recent years, the 78-year-old Dr Lagan has watched on as the company founded on his dreams plummeted into debt that forced the sale of Xanadu’s major assets earlier this year.
Even the Xanadu name went in the $26.16 million fire sale to the family company of multi millionaire chemical mogul and winery owner, Doug Rathbone.
Xanadu was the name Dr Lagan and his wife, Eithne, chose for their first home at Killyclogher, just outside Dr Lagan’s birthplace of Omagh, Northern Ireland. The name was drawn from their love of the Samuel Taylor Coleridge poem Kubla Khan, which seemed to encapsulate the then young couple’s hopes and aspirations for the future.
“It broke my heart to see what happened to the business my family and I began in the early 1970s,” Dr Lagan told WA Business News.
He said it was not only the money – including personal paper losses of about $4.5 million – but the dreams that had been destroyed. These were dreams born of hard times that began soon after the Lagans, both doctors, arrived in Margaret River in 1968 to be greeted by an impoverished rural town far from what they had been promised. The local hospital was on the point of closure and saved mostly by the Lagans’ arrival.
Over the next few years the Lagans struggled to establish separate medical practices in Margaret River and another at Kwinana, more than 250 kilometres to the north, because there wasn’t enough work for two doctors in the south.
They also set up the vineyard and raised three children.
Their decision to stay and establish what was then called Chateau Xanadu was heavily influenced by eminent Perth cardiologist Dr Tom Cullity and another Margaret River wine pioneering medico, Dr Kevin Cullen and wife, Diana.
“I bought the first 80-hectare vineyard block in 1970 for $50 per 0.4ha [one acre],” Dr Lagan said.
But it was not until 1975 that the family began clearing the ground for the first plantings in 1977 and Chateau Xanadu’s first wine – a 1981 Cabernet Sauvignon – was made by close friend, the late Bill Ullinger at his nearby Redgate winery.
“It was almost undrinkable, but we did anyway.”
Dr Lagan is a gentle, humorous man some have called eccentric, with a love of the classics, art, literature, wine and the occasional Irish whiskey. He is not an angry man, but clearly bristles when asked about Xanadu.
The blame for Xanadu’s ignominious fall, he sheets squarely home to the company’s directors; all the more difficult for the fact that his son, Conor, was an executive director of the company from its early years to September this year.
“They drove that company recklessly, without due care and consideration. Xanadu expanded too quickly on borrowed and shareholder money when there was an Australia-wide wine glut,” Dr Lagan said.
In 2001 and 2002 the company paid $4.48 million for South Australian companies Norman Wines and Next Generation Wines.
The damage bill for a winery fire in 2004 ran into millions and cost the company all its gold-medal-winning chardonnay.
Big export predictions, mostly involving Normans, fell well short and the company was forced to discount.
In hindsight, Xanadu struggled in a public company structure and was more suited to the family scenario mapped out by Dr Lagan in the 1970s.
And therein, Dr Lagan believes, lies the root of Xanadu’s and the Lagan family’s woes – the Augusta Margaret River Shire Council.
In 1994, the Lagans decided to fund Chateau Xanadu’s expansion by dividing part of their property holdings into strata-titled blocks for vineyards.
After a long and bitter battle, the council resolved in 1995 that “the land proposed for strata title should be mainly for agriculture and not for planting vineyards”.
The Lagans’ application was rejected without a word of debate, according to Dr Lagan.
The fact that vineyards were not considered by the council to be an agricultural pursuit made the ruling even harder to swallow.
Dr Lagan’s normally calm and tranquil demeanour pales at the mention of the shire council’s role.
He said the winemaker’s efforts to raise new expansion capital was “scandalously aborted” by the actions of the shire council.
“Had we not been victims of this shameful atrocity, we would have proceeded in 1995 with our strata title development, allowing us to further develop the Chateau Xanadu vineyard and its 162ha of land, and to retain it as an ideal family entity.”
Ironically, son Conor later went on to become a shire councillor and shire deputy president in 2001.
So the path to public company listing to fund expansion, and Xanadu’s ultimate demise, was set.
In 1999, accountants and insolvency specialists Norgard Clohessy put together a $10 million funding deal, then an $8.2 million capital raising at 35 cents a share and stock exchange listing in 2001.
The Lagan family emerged with about $6 million and 30 per cent of the company, about half the cash component going to repay previous winery related debts.
Since 1999, Xanadu had raised just less than $50 million, its issued shares had blown out from about 35 million to more than 250 million, and its share price had crashed from a high of 42 cents in 2002 to half a cent under the stripped company’s new Global Wine Ventures name.
“Eithne and I are still stuck with about eight million shares,” Dr Lagan said.
In association with his son, Conor, Dr Lagan is developing 20 townhouse blocks on a two-hectare block next to the Lagan house, Le Petit Chateau Xanadu.
The approval stages have once again brought the good doctor head to head with his old nemesis, the Augusta Margaret River Shire Council.
• The writer has assisted Dr Lagan with his planned memoirs.
LAGAN’S WAY
• 1968: Drs John and Eithne Lagan arrived in Margaret River.
• 1977: The Lagans plant the first Xanadu vines.
• 2001: Xanadu raises $8.2 million and lists on the ASX.
• 2002: Share price peaks at 42 cents.
• 2005: Xanadu sells its major assets to Doug Rathbone for $26.16 million.
• 2005: Xanadu corpse renamed Global Wine Ventures. Shares worth 0.05 cents.
