With the resolution of Chinese wine tariffs on the horizon in the coming weeks, Treasury Wine Estates is making a significant move in the US alcohol sector. The company has a history of major deals in the US, notably the acquisition of Beringer Estates when it was under Foster's control.
On Tuesday, the company unveiled plans for a $1.6 billion purchase of Californian wine producer Daou Estates, equivalent to $US1 billion. This deal will require strong support from shareholders, some of whom have expressed concerns about the company's previous ventures in the US.
Shareholders will be asked to cover approximately half of the cost through a capital raise of $825 million, priced at a discounted rate of $10.80 per share. Treasury Wine (TWE) shares were placed on a trading halt on Tuesday, with the last trade occurring at $12.10 on Monday's closing.
Treasury Wine disclosed that the upfront cost of the acquisition is $US900 million, with an additional earn-out agreement of up to $US100 million contingent on achieving certain revenue targets from the deal's closure until the end of 2027. Furthermore, there will be a $157 million placement of shares to Daou's owners (vendor finance) and an assumption of $311 million in debt (more vendor finance), which means that $468 million of the purchase price will be either supported by the vendors or represent a transfer of costs from the vendors to TWE.
Daou Vineyards, based in California's Paso Robles region, was founded in 2007 by the Daou brothers, Georges and Daniel. The company produces wines across five product tiers, ranging from $US20 to $US500 per bottle, and owns a tasting room venue, four luxury vineyards, and four wineries.
Treasury CEO Tim Ford stated that this purchase aligns with the company's focus on the luxury wine market, which offers global opportunities. He said, "We continue to see strong long-term growth trends for luxury wine in [Treasury's] key global markets, with a significant value creation opportunity leveraging and building on the strengths today of TWE, Penfolds, Treasury Americas, and DAOU to create a multi-brand global luxury wine business of scale," in the company's statement to the ASX on Tuesday.
However, investors may question how TWE can justify another substantial investment in the US, especially after the 2020 19 Crimes wine label deal with rapper Snoop Dogg faltered and contributed to a weak sales performance in 2022-23. Some may also be concerned about the cost of this deal and the potential diversion of management's time and attention away from the promised efforts to rebuild its Chinese businesses.