Here's why Treasury Wine Estates Ltd plummeted yesterday: Will it fall further?

Management of Treasury Wine Estates Ltd (ASX:TWE) have rejected the proposed takeover offers.

a woman

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As many readers will be aware, two exciting takeover offers from Kohlberg Kravis Roberts & Co and an unnamed private company earlier this year saw Treasury Wine Estates Ltd's (ASX: TWE) share price shoot up from $3.50 to around $5.20, which was the price offered for the company.

After much deliberation, periods of due diligence and consultation with major shareholders, the management of Treasury Wines decided that the offer of $5.20 per share undervalued the company.

Given that bidders were apparently unwilling to meet a price and terms that management thought appropriate, all discussions with potential buyers have been terminated.

The announcement yesterday wiped over $300 million off Treasury's market value, with the shares trading as low as $4.13 before closing at $4.50.

Shareholders should expect the slide to continue over coming weeks as Treasury returns to a more reasonable value – its price to earnings multiple of 26 is still exorbitant given the company's slim growth prospects and poor performance record.

While on one hand I am glad to see Treasury Wines remain in Australia and publicly traded, I think that management has made a grievous error in refusing the already generous offer of $5.20.

In my opinion the company has limited growth prospects and a record of underperforming the ASX means the offer should have been accepted.

While I like Treasury Wines as a company, I would not consider a purchase until I saw it back around 52-week lows of $3.50.

Future shrewd business decisions will also be required in order to convince shareholders that management is capable of delivering a value of greater than $5.20 over the next couple of years.

Personally speaking I'm highly sceptical, and would avoid the company for the time being.

There are dozens of other excellent growth shares out there, including one that The Motley Fool's top analyst saw fit to name his Top Stock Pick for 2014-2015.

With an outstanding seven-year record of revenue and dividend growth – and more to come thanks to the company's ambitious expansion plans – readers need to see why this company is not just a Top Stock pick, but could in fact become the best company in your portfolio full stop.

You can access our free special report simply by clicking on the link below and entering your email address – it takes less than 30 seconds, and is completely FREE!

Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned.

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