TWE buys Diageo’s wine business

The deal advances a turnaround plan under Chief Executive Officer Michael Clarke, brought in past year to rethink the company’s growth strategy after a disastrous foray into the US saw it destroy thousands of cases of unsold low-end wine.

The acquisition is expected to immediately double net sales revenue from TWE’s luxury and masstige (mass prestige) wines in the Americas.

Shares in Treasury Wine Estates entered a trading halt this morning pending the announcement.

Key United States brands to be acquired include the well-known Beaulieu Vineyards, Sterling Vineyards, Acacia, Provenance and Hewitt.

TWE may also purchase the Blossom Hill wine model in the UK.

Diageo’s United Kingdom wine business comprises approximately five million cases of wine, sold in both Great Britain and in 28 worldwide markets in FY15.

TWE also said that the deal means it avoids US$80m of capital investment that would have been required to replace its existing leased bottling facility in the US.

TWE said sales and earnings had accelerated in the first quarter of fiscal 2016 and the company expects continued momentum for the rest of the year.

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

“The acquisition of Diageo Wine represents a highly compelling strategic and financial opportunity for TWE’s shareholders”, said Treasury chairman Paul Rayner.