Treasury Wine to buy majority of Diageo's US, British wine assets for $552 mn

Australian vintner Treasury Wine Estates (TWE), a former unit of Foster's Group, today struck a deal to buy the majority of Diageo Plc's US and British wine operations for $552 million.

TWE, which owns major brands including Penfolds, Stags' Leap, Rosemount and Wolf Blass, will fund the deal by an A$486 million ($350 million) rights issue that has been underwritten by Goldman Sachs.  

"The acquisition of Diageo Wine represents a highly compelling strategic and financial opportunity for TWE's shareholders," said TWE chairman, Paul Rayner.

TWE Expects total annual cash synergies of at least A$34 million ($25 million) before FY20.

Diageo has been looking to sell its wine business, which is very small compared to its spirits and beer operations, constituting only about 4-per cent of the company's annual revenue.

Diageo chief executive Ivan Menezes said, ''Diageo's strategy is to drive stronger, sustained performance through focus on our core portfolio and today's announcement is another element of that strategy in action.''

''Wine is no longer core to Diageo and this sale gives us greater focus,'' Menezes stressed.

''The net proceeds of approximately $489 million after tax and transaction costs will be used to repay borrowings, Diageo revealed in a statement yesterday

The transaction is expected to close by the end of the year, subject to customary closing conditions and regulatory clearances.

With this transaction, the British company will have gathered over $1.5 billion through the sale of its non-core assets since the beginning of the financial year, which is aimed at improving its financial strength.

Following completion of this transaction Diageo's wine interests will be limited to Justerini & Brooks wine merchants, the Argentinean wine business of Navarro Correas, the Turkish wine brand of Mey Icki and India's United Spirits wine brands, and the US brands of Chalone and the Acacia winery.

Diageo Wine is a leading player in the US Luxury and Masstige (mass prestige) wine market owning a collection of iconic wine brands in Napa California.

The purchase includes the well known Beaulieu Vineyards, Sterling Vineyards, Acacia, Provenance, and Hewitt among other assets.

Diageo's US wine business comprises around 4 million cases of wine and has robust sales in the growing Luxury and Masstige segment.

TWE will also acquire the Blossom Hill wine brand in the UK. Diageo's UK wine business sells around 5 million cases of wine annually, and are sold in the UK and 28 other countries.

In FY15, Diageo Wine generated sales of around $470 million and EBITDAS of $76 million.
 
Treasury Wine, which has a market cap of A$4.8 billion, was spun off by Foster's Group in 2011 after a decade-long expansion by the beer maker into wines in Australia and the US at a cost of nearly $6 billion.

The Melbourne-based comapny has a unique portfolio of premium global brands, which includes iconic brands such as Beringer, Chateau St Jean, Lindemans, Wolf Blass, Penfolds, Rosemount, Wynns Coonawarra Estate, Stags' Leap Winery, Matua Valley, Etude, Castello di Gabbiano, Australia's Seppelt, Coldstream Hills, and Devil's Lair.

With over 12,000 hectares of vineyards, Treasury Wine employs over 4,000 winemakers, viticulturists, sales, distribution and support staff across 12 countries.

The company's first wine acquisition was Mildara Blass Ltd in 1996 for $482 million while it paid $2.6 billion in cash and debt for California's Beringer Wine Estates Holdings Inc in 2001.

With its $3.2-billion purchase of Southcorp Ltd in 2005, it cemented its ranking as the world's second-biggest winemaker behind Constellation Brands Inc.

The company has assets on three continents with more than 80 brands and posted a net profit of Aus$77.6 million in the year to 30 June.