Treasury Wine shares fall on rejection of deal offer
29 Sep 2014
Shares of Australia's largest winemaker, Treasury Wine Estates, fell sharply after it rejected takeover proposals from two global private equity firms, Reuters reported.
Treasury, owner of Penfolds, Wolf Blass and a host of other prominent labels, had been in discussion with Kohlberg Kravis Roberts and a rival PE suitor, believed to be TPG.
The two firms had each proposed payment of $5.20 a share, valuing Treasury at almost $3.4 billion.
However, following discussion with its major shareholders about the proposals, while the two suitors appraised the business of the company, the winemaker decided to drop the idea.
Most of the major shareholders of the company believed the proposed offers were too low.
According to Treasury chief executive Michael Clarke, who had been in discussion for two months with the suitors, it became apparent that they were not able to address potential regulatory concerns in the US or finalise an acceptable financing structure.
According to Clarke, he did not think that either of the suitors would return with fresh proposals.
He said today, according to his point of view, he thought it was over.
Disappointed with the development, investors pulled down Treasury's shares by 55.5 cents, or 11.3 per cent, to $4.365.
Clarke, who had taken the helm in March, added in a teleconference with reporters that the potential deals would have involved higher levels of debt than the company was comfortable with and cited a regulatory concern though he did not spell out what it was, AAP reported.
According to analysts, the failed talks underscored a wide range of opinions on how Treasury Wine could be valued. According to analysts an estimate of fair value stretched from A$3.50 to A$7.00 per share.
The firm had had to struggle with oversupply problems in the US which recently led to the destruction of thousands of cases of stock and it had also suffered slower demand from China amid a crackdown on luxury gifts to officials.
According to Morningstar analyst Daniel Mueller, effectively there had been two previous management teams that had said the right things and had not delivered. He added it was hard to see what was going on to change that.
According to commentators, weakness in the Australian dollar in recent weeks might help the company's export sales in the short term but A$5.20 was a "stretched valuation".
KKR said in a statement that the company's management had "shown great capability and understanding of the business."
