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Why Treasury Wine Estates Ltd soared today

Wine maker Treasury Wine Estates Ltd (ASX: TWE) shares climbed 4.7% today to $5.17, and are up over 26% since receiving a takeover over from a US private equity firm, earlier in the week.

On Tuesday, Treasury Wine received a $4.70 per share takeover offer from Kohlberg Kravis and Roberts (KKR), valuing the company at around $3 billion, but the company has dismissed the offer as ‘not in the best interests of shareholders’. No doubt, the board will hire an ‘independent’ expert, who will verify its claim that the bid undervalues the company. Ok – that’s probably being a bit sarcastic – the company may not need to get an independent export in, if news reports are correct.

Now it appears that Chinese-owned food group Bright Food, is sniffing around Treasury Wine, and according to the Australian Financial Review (AFR), is weighing a potential offer. The AFR also reports that Pernod Ricard and Constellation Wines were rumoured to be interested in Treasury Wine’s US business.

But new CEO Michael Clarke has repeatedly stated that the US wine division is integral to the company.

It seems a more than even chance that a bidding war may erupt, similar to the ‘Cheese Wars’. Three separate companies were fighting for control of Warrnambool Cheese and Butter Factory Co (ASX: WCB), including Bega Cheese Ltd (ASX: BGA), Canada’s Saputo and privately-owned dairy Murray Goulburn. That war saw the eventual takeover price double from the price before it had received any bids.

A takeover offer may be the best news for shareholders, with Treasury wine struggling to gain much traction, since being demerged from Foster’s. We’ll watch this one play out from the sidelines, with plenty of other ideas out there.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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