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Treasury Wine Estates hints at possible US acquisitions

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By Ben Bouckley+

22-Aug-2014
Last updated on 22-Aug-2014 at 17:58 GMT

Jameson Fink/Flickr
Jameson Fink/Flickr

Troubled Australian wine group and takeover target Treasury Wine Estates wants to accelerate its high-value US business and is exploring possible acquisitions or takeovers there.

The company reported its full year 2014 results yesterday with net profit down 20.4% to AUD $112.8m, while nine-liter case sales fell 6.4% to 30m; net sales rose 1% to AUD $1.7bn.

But a post-tax write down of AUD $280.6m (reflecting a July 2013 decision to destroy old and outdated US stock that also led to a shareholder-led class action) meant the firm lost AUD $100.9m.

Despite EBITS down 7% to AUD $74.9m in the Americas, TWE said its Masstige (‘prestige for the masses’) and Luxury depletions (volume movements for distributors to retailers) grew 15% and 3% respectively.

TWE wants to accelerate US growth in masstige and luxury

CEO Michael Clarke told investors that TWE saw the brightest growth prospects in Australia (value growth without chasing volume), the US and North Asia (both volume and value growth).

Gino Rossi, an analyst as Citigroup told Clarke: “It sounds like you’re targeting some kind of acquisition in the US. I’m just wondering what kind of asset you’d be after – and what sort of multiple you’d be prepared to pay?”

Clarke said that TWE had to be explicit on its strategic direction in light of two takeover bids, adding: “We believe there is an opportunity to accelerate our growth, especially the areas of masstige and luxury propositions in North America.

“We’re doing an outstanding job growing that part of the business. There’s been a limit on the amount of liquid we’ve had access to further grow the business beyond what we’ve achieve in fiscal 2014,” he added.

TWE now has access to more liquid, which will help it push brands including Beringer and Stag’s Leap in fiscal 2015, Clarke said, with the Luxury category the fastest-growing in North America.

“But I think there could be opportunities to even accelerate the revenues – and get revenue synergies as well as cost synergies, if we do something in North America – inorganic growth could mean acquisitions, an alliance – it could take a number of different forms.”

Clarke confirms wish to stay on after any takeover

Clarke also insisted that he was keen to stay on as CEO if TWE was taken over; both KKR/Rhone Capital and an anonymous bidder have made $3.2bn proposals to take over the troubled firm.

“We’ve laid out a fabulous roadmap and journey for the turnaround of this company. I think it’s definitely doable, and is very focused,” Clarke said.

The board like it, management likes it, the organisation likes it – everyone’s getting behind the different component parts of the turnaround,” he added.

“The people who are looking at the company from the outside in seem to like it and want to back management on this trajectory. Yes, I think the team and I would be love to be able to execute this roadmap and deliver on that,” Clarke said.

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