Treasury Wine Estates Ltd jumps on takeover bid: Is Australian Vintage Limited next?

Is there an opportunity to make big gains if another wine business attracts the attention of overseas investors?

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The world’s second-largest listed wine business Treasury Wine Estates Ltd (ASX: TWE) this morning announced it had received a revised takeover proposal from private equity group Kohlberg Kravis & Roberts (KKR), valuing the company at $5.20 per share. Shares were up 21 cents or 4.25% in early trade to $5.16.

In April KKR had a $4.70 per share bid rejected by the Board of TWE as undervaluing the company. Investors should note KKR’s revised proposal remains subject to several conditions including completion of due diligence and the acceptance of the Board of TWE.

TWE has suffered from a string of operational mishaps and writedowns in the near past and is currently being pursued in the courts by Bentham IMF Ltd (ASX: IMF) over allegedly failing to properly disclose to shareholders how bad the state of its North American operations were in financial-year 2013.

In rejecting the original proposal TWE’s board said it did not represent the fundamental value of the company given chief executive Michael Clark’s transformation plan for 2015. If the TWE Board concludes that the latest offer does not deliver a value proposition superior to the expected benefits from TWE’s own cost-cutting, improved marketing and structural change plans, then it’s possible the offer will be rejected again.

However, the fact that KKR has now been granted the right to conduct due diligence suggests the TWE Board is now inclined towards accepting the offer. Notably though the due diligence agreement is non-exclusive, meaning other investors may lob in an offer better than KKR’s.

Australian agriculture’s potential to act as the food bowl of Asia has attracted a lot of interest from private investors recently, with Warrnambool Cheese and Butter acquired by Canadian company Saputo, and Graincorp Ltd (ASX: GNC) subject to an attempted takeover bid from U.S. business Archer Daniels Midland Company (NYSE: ADM).

While some businesses can act as the food bowl for Asia, as a wine producer TWE has potential to act as the punchbowl for Asia. It’s not alone in that potential with shares in Australian Vintage Limited (ASX: AVG) also up 1.5 cents or 4% today.  It’s the company behind brands like McGuigan, Tempus Two and Nepthene, all of which are sold heavily in Asia. Investors may be getting giddy on its prospects to attract the attention of overseas investors too.

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Motley Fool contributor Tom Richardson has no financial interest in any company mentioned. You can find him on Twitter @tommyr345

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