Australia’s Treasury Wine Estates buys U.S., British assets

TWE, which owns the Penfolds, Wolf Blass, Lindeman’s and Rosemount Estate labels in Australia, and Beringer Vineyards, Chateau St Jean and Etude in the U.S., will tap investors for $A486 million to help fund the deal.

The potential acquisition of Diageo brands by Treasury was first revealed by the Australian Financial Review on October 3.

Treasury Wine Chief Executive Michael Clarke said the acquisition will transform the firm’s US business into a ” larger player of scale” in the luxury and masstige segments of the high-growth USA market.

In a statement about the deal TWE said the deal is “compelling for TWE’s shareholders”, adding it “expects that approximately 75 per cent of gross profit from the acquired Diageo Wine business will be luxury and masstige”.

Mr Clarke says the Diageo acquisition should deliver annual cash synergies of $34 million before 2019-2020.

Treasury will raise the A$486m through a 2-for-15 pro-rata accelerated renounceable entitlement offer priced at $5.60 per share.

The USA brands produce about 4 million cases of wine annually.

TWE will also acquire the Blossom Hill wine brand in the United Kingdom, which is one of the leading wine brands in the United Kingdom by volume and value.

I have recently been critical of Treasury’s price and sceptical about management, but today’s announcement appears a shrewd purchase that indicates management is serious about going the premium route with their wine marketing.