PE firms tussle for Treasury Wine

October 2014 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Just months after rejecting a $2.9bn takeover offer from private equity (PE) giant Kohlberg Kravis Roberts & Co LP (KKR), Australian firm Treasury Wine Estate Ltd, the world’s biggest listed wine manufacturer, now finds itself at the centre of a two-way PE bidding war.

The initial offer, submitted in April, was rejected by Treasury’s board which claimed that the $4.70 per share offer wholly undervalued the company. Accordingly, in early August KKR returned to bid again for Treasury, this time in a joint venture with Rhône Capital LLC, the private equity arm of the Rhône Group. The firms submitted a sweetened offer of $5.20 per share, or $3.2bn, for Treasury Wines; but this revised offer was matched shortly after by a third party, believed to be fellow PE firm TPG Capital. Following receipt of the two rival offers Treasury Wine released a statement acknowledging the firm’s willingness to discuss the possibility of a buyout. In a stock exchange filing, Treasury Wine said its board “has concluded, based on the revised proposal, that it is in the interests of its shareholders to engage further with KKR and Rhône”. Furthermore, the company’s board said it would negotiate with the bidders for a confidentiality agreement so that they could begin due diligence. However, Treasury Wine did not rule out the possibility of further rival bids from interested parties. It is believed that other PE firms, including Carlyle Group and Blackstone Group, are interested in acquiring Treasury, although at the time of writing neither firm is officially involved in the current round of negotiations.

The two concrete offers for Treasury Wine represent a 41 percent premium to the firm’s share price on 15 April, the day before the initial offer from KKR was received.

PE’s continued interest in Treasury Wine belies the struggles that the firm has experienced since it was spun off from Australian brewer Foster’s Group in 2011. Since going independent, the firm has faced increased competition at home and rapidly declining sales abroad. Indeed, the company has particularly struggled in the US, where consumers are turning away from Treasury’s portfolio of cheaper brands, including Lindemans, Wynns, Rosemount, Wolf Blass and Rothbury Estates, toward more expensive wines.

Reflecting the company’s recent struggle, Melbourne-based Treasury’s shares lost 36 percent of their value over the 12 months before KKR’s initial approach was revealed. Part of this drop in value was precipitated by the $160m write-down the company was forced to endure in 2013. Last year Treasury announced it would be forced to dispose of thousands of bottles of wine it considered “undrinkable” as the firm attempted to lift the quality of its inventory. The effect of the write-down forced then chief executive David Dearie, and three other members of the company’s senior management team, to stand down. The write-down also helped to push the firm into pursuing a sale.

Should the KKR-Rhône joint venture offer prove successful, KKR will likely utilise some of the firm’s new $6bn Asia-Pacific fund which closed in July 2013. TPG has also been active in Australia in 2014. In June the firm acquired property management firm DTZ from contractor UGL for around $1.2bn and raised approximately $2.26bn via the IPO of private hospital operator Healthscope in July.

Away from the takeover talks, Treasury has been attempting to re-coup some of its losses by expanding into new areas. In July the firm announced that it was looking to enter the $39bn global travel retail market. Treasury has been able to secure shelf space for its products in some of the world’s most high profile airports, cruise liners and duty free shops. The company believes that historically the wine category has remained relatively untapped at airports, with spirits dominating alcohol sales at 70 percent.

Richard Summerfield