Foster’s former wine group now on the market
Having fought off an AUD 4.70 per share bid from private equity outfit KKR earlier this year, Treasury Wine Estates probably thought they were safe from a takeover. Well, that pious hope only lasted until early August. The new AUD 5.20 offer from KKR and its partner Rhone Capital is large enough to force Treasury’s board to the negotiating table.
Treasury is the world’s largest listed wine company. Home to more than 80 brands sold worldwide, Treasury has for years lured suitors -- even before its 2011 spinoff from Australian brewer Foster’s Group.
The revised offer values Treasury at about AUD 3.7 billion (USD 3.4 billion), which is about 34 times Treasury’s 2013 profits (EBITDA) and about 14 times its estimated 2014 EBITDA.
The latter figure matches the median EBITDA multiple in wine and spirits deals since 2004.
Media have speculated that Treasury’s board would have dearly loved its management team to have the opportunity to execute its own turnaround strategy for the company, but the reality is that shareholders have lost patience with internal attempts to revive Treasury’s earnings performance.
A succession of chief executives has failed to get traction and succeeded only in disappointing the market. All of Treasury’s CEOs implored investors to look at the longer term picture. This is not surprising, given that wine making is an agricultural business which has long-term horizons for performance and plenty of volatility along the way, observers say.
Thus, Treasury is the prime example as to why wine companies do not make for listed companies. Wine’s long-term vision does not square with the stock markets’ short-term focus on profits.
This said, Treasury has plenty of challenges but it also has a flagship brand in Penfolds that could be worth almost as much as the AUD 3.7 billion which is being offered for the whole company.
This is the reason why the bidders might push the price up for Treasury rather than down. Treasury has long been considered a perfect candidate for private equity owners because the jewel -- Penfolds -- can be easily picked out of the ashes.
Of course, KKR is under no obligation to offer this price once it takes a closer look at Treasury’s books. These days it is not unusual to see bidders come back with a lower price.
