It has long been speculated that wine producer Treasury Wine Estates Ltd (ASX: TWE) would be a takeover target since it was demerged out of brewer Foster's in 2011.
Now those ideas have become fact, with Treasury Wine announcing that it has rejected a $4.70 per share offer by US private equity firm, Kohlberg Kravis Roberts (KKR) – well above its last closing price of $4.07. Shares have since soared to $4.89, in mid-morning trade. According to an announcement to the ASX today, Treasury Wine says it received the bid on April 16, but had decided not to disclose the proposal in order to have meaningful discussions with KKR.
Now the company says that KKR had spoken to one or more of Treasury Wine's shareholders and there was a risk the deal could be leaked. As if often the case with first proposals, the board has rejected KKR's offer, saying it 'does not reflect the fundamental value of the company', and 'was not in the best interests of shareholders'.
As we mentioned in this article, new CEO Michael Clarke was attempting to turnaround the company's business, but at the time we said the best hope for shareholders may well be a takeover offer.
Mr Clarke has announced plans to cut an estimated $35 million from costs in 2015 – which will cost up to $35 million – and has plans to increase marketing and advertising spend by around 50% in 2015, over the current financial year.
But that may not be enough to satisfy major shareholders, and they could push for Treasury Wine to accept a takeover offer instead. With Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES) controlling an estimated 77% of Australian retail wine sales, Treasury is under extreme pressure to cut its margins here, much like Coca-Cola Amatil Ltd (ASX: CCL) and Goodman Fielder Ltd (ASX: GFF) have found. The US is also a key part of Treasury's business, but has been struggling to compete with its much larger competitors.
There's no guarantee that a deal will eventuate, so investors buying into Treasury Wine now in the hope of receiving a higher takeover price are taking a gamble rather than investing.
