Penfolds producer Treasury Wine Estates has welcomed a $3.15bn takeover proposal from private equity firms Rhone Capital and KKR and will let them to conduct due diligence on its books.
The AUS $3.38bn or $5.20/share offer for the troubled Australian maker of Beringer, Penfolds and Wold Blass was welcomed today by TWE’s board, who said it was in the interest of shareholders to engage further with the companies.
Thus, KKR and Rhone Capital will be allowed to conduct non-exclusive due diligence, following which the TWEs board must unanimously recommend the transaction.
The offer comes after TWE’s board rejected an AUS $4.70/share offer from KKR alone on April 16, and the revised joint bid represents a 10.6% premium compared to this.
TWE’s board says it must decide if any offer is superior to the benefits it expects to derive from its “renewed strategic plans” – net sales were flat at AUS $812m in H1 to February 20, and net profit after tax (AUS $106.7m) would have fallen significantly but for a one-off AUS $70.6m tax benefit.
These include (1) increasing and accelerating consumer marketing investment in the company’s brands (2) driving efficiencies and improving the company’s cost base.
Business targets ‘step change’ under new CEO Clarke
Thirdly, management is focusing on commercial brands separately from the Luxury and Masstige (masstige is a portmanteau word that combines ‘mass’ with ‘prestige’ – so ‘prestige for the masses’) portfolio in Australia, and unlock supply chain cost savings here.
TWE said any suitors must also look at inorganic opportunities (i.e. acquisitions) to build on existing growth platforms for TWE’s Luxury & Masstige brands.
On June 25 TWE announced a ‘step change’ in its business driven by new CEO Michael Clarke – this included combining release dates for new vintages of Penfolds Bin Series and Penfolds Icon & Luxury Collections – these will now be announced on October 16, rather than in March and May.
Alongside a significant increase in its consumer marketing spend, TWE said this measure will mean that Penfolds wines will be available over a much longer trading period with more sales and marketing support from Penfolds winemakers.
‘Placing the consumer at the heart of our business model’
“An October release also means the company is better placed to manage allocations and inventory levels with key customers around the world throughout the year – in contrast to selling through the release in the final quarter of each fiscal year,” TWE said.
Clarke said the October release “places the consumer at the heart of our business model with Penfolds wines now more readily available in the lead-up to key festive periods including Thanksgiving, Christmas, Chinese New Year and Easter”.
June 25 also saw TWE announce further bad news – an AUS $260m write-down on the value of brands, IT, plant and equipment for 2014, ahead of its full-year results announcement in August.
Clark said in April that TWE has too many (80+) brands in its portfolio and need to prioritise some “to make sure that the top-end brands get the lion-sized chunk of our consumer marketing spend to engage with consumers to drive consumers into stores”.