Pass The Red! Takeover Battle For Treasury Wine Erupts

A few months ago we highlighted a bid by private equity giant KKR for Foster’s spinoff Treasury Wine Estates (TWE.AX). The A$4.70 per share bid represented a nice premium (at the time) for the struggling spirits company which remains in the middle of a turnaround plan by new CEO Michael Clarke. The company wasn’t too enamored with the offer and even tried to keep the bid under wraps before ultimately rejecting it. Many questioned that tact, believing the initial offer to be fair given the company’s challenges and valuation.

It seems management knew what it was doing as just a few months later, KKR (and newly discovered partner the Rhone Group) upped its bid by over 10% to A$5.20 per share or ~$3.15b USD total. That seems to have grabbed the company’s interest and it agreed to open its books to KKR on a non-exclusive basis. Many suspect that the private equity firm is most interested in Treasury’s premium brand, Penfolds, and that it will ultimately sell off the rest of its brands. The delay tactics also scored another benefit as just a few days after receiving the higher bid, Treasury received a rival bid, reportedly from private equity firm TPG, at the same price.

Mr. Clarke’s efforts to cut costs and improve Treasury’s offerings offered some optimism for shareholders, but with these higher bids on the books, it looks like the runway for internal turnaround efforts has run out. The WSJ’s Heard on The Street is doubling down on its bet and thinks the company should take the deal as it represents a rich multiple (at least when compared to its more diversified peers) of earnings. Initially, shares jumped above the offer price in the expectations of a bidding war, but the company’s most recent ugly results seem to have doused those hopes.

It’s not a done deal though. This piece highlights an investment house which doesn’t think the deal will go through as KKR will ultimately value Treasury at just A$3.15 on a DCF basis. This WSJ piece also hints at that idea, noting that both offers are nonbinding and are likely just being used by the investment shops to gain access to the company’s books. After extensive due diligence it is very possible that both could decide to lower their bids or even walk away. This is where having a second bidder will be helpful though as it should provide the company with at least some leverage in the process. We should have some news soon as the company announced that it would likely delay its AGM in order to combine the meeting with a vote on a potential takeover.

Disclosure: Author holds no position in any stock mentioned.