TWE amid takeover rumours
“No” was the word most frequently used by Australia’s Treasury Wine Estates’ PR in May. “No”, the world’s number two wine company was not in talks to be acquired by China’s Bright Food Group. And “no”, it had not been approached by either Pernod Ricard or Constellation Brands for its U.S. business.
Treasury Wine Estates (TWE), spun off from the Fosters Group in 2011, has been considered a takeover target since late 2013 when it slashed earnings forecasts, ousted its CEO and revealed that its U.S. arm was forced to destroy wine because of oversupply. Its portfolio, which includes the Beringer and high-end Penfolds labels, makes it especially attractive for companies hoping to capitalise on growing demand for luxury goods in Asia as the region’s middle class expands, media say.
TWE, though, confirmed that it had received an AUD 3.1 billion (USD 2.9 billion) takeover bid from U.S. private equity firm Kohlberg Kravis Roberts (KKR) – which it rejected.
The Board of TWE announced on 20 May 2014 that it had declined a preliminary, indicative, non-binding and conditional proposal from KKR to acquire all of the shares in TWE at a price of AUD 4.70 cash per share, valuing the company at AUD 3.05 billion. TWE’s board concluded that the proposal did not reflect the fundamental value of the Company and that it was therefore not in the best interests of our shareholders. TWE also said that about 175 jobs from its 3,500 workforce will be cut in an attempt to reduce operating costs by AUD 35 million. A new marketing campaign will commence in July – in this, drinkers will be urged to choose the best 20 wine brands in the group’s portfolio with the aim of raising other company brands to the prestigious level held by the Penfolds brand. In response, TWE’s shares rose to AUD 4.80 on the Australian stock exchange – above the private equity offer.
Should KKR still be interested in snapping up TWE, they will just have to bid more. Even at AUD 4 billion TWE is a bargain. After all, Foster’s spent between AUD 7 billion and AUD 8 billion to build up its wine portfolio over the years. Ok, most observers say Foster’s overpaid, but still.
