Treasury Wine share price halted to raise funds for major $1.4b US acquisition

Treasury Wine is planning a huge acquisition in California. Why is it making the move?

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The Treasury Wine Estates Ltd (ASX: TWE) share price won't be going anywhere on Tuesday.

That's because the wine giant has requested a trading halt this morning.

Why is the Treasury Wine share price paused?

The company requested a trading halt so that it can launch an equity raising to fund a major acquisition.

According to the release, the company has entered into arrangements to acquire 100% of DAOU Vineyards and its associated entities for an upfront consideration of US$900 million (~A$1.4 billion), plus an additional earn-out of up to US$100 million (~A$157 million). The latter is payable in the event that certain net sales revenue (NSR) targets deliver growth in excess of pre-agreed thresholds from 2025 to 2027.

The release notes that DAOU is a highly acclaimed luxury wine brand based in Paso Robles, California. It is also the fastest-growing luxury wine brand in US trade over the past year.

Management highlights that the acquisition will accelerate the company's focus on luxury-led portfolio premiumisation to approximately 50% of global group NSR. The release reveals that DAOU fills a key Treasury Americas portfolio gap at US$20 to US$40 per bottle and strengthens the existing luxury portfolio above US$40 per bottle.

Pleasingly, immediate accretion to key operating metrics is expected. For example, it expects the deal to be earnings per share accretive pre-synergies and mid to high single digit earnings per share accretive post-synergies in FY 2025.

Equity raising

To fund this major acquisition the company is seeking to raise A$825 million through a fully underwritten pro-rata accelerated renounceable entitlement offer with retail entitlements trading.

In addition, the company will raise A$157 million through a placement to the existing owners of DAOU, and US$311 million of debt through a new US$350 million acquisition bridge facility.

Under the entitlement offer, eligible shareholders are entitled to acquire 1 new Treasury Wine share for every 9.45 existing shares.

This will be at $10.80 per share, which is a 10.7% discount to the current Treasury Wine share price. Though, the placement to DAOU will be undertaken at an issue price of $11.97 per share.

'Significant value creation opportunity'

Treasury Wine's CEO, Tim Ford, was very pleased with the agreement. He commented:

We are delighted to welcome the DAOU brand to TWE, including its award-winning portfolio, experienced leadership team and aligned culture. The acquisition reflects the continuation and acceleration of our luxury-led portfolio premiumisation strategy with the luxury portfolio now contributing 50% of Group NSR and the quality of TWE's and Treasury Americas operating metrics improving immediately and in the future.

The combination of Treasury Americas and DAOU creates a leading luxury wine business in the United States, the world's largest luxury wine market which is growing strongly, with an unparalleled portfolio of highly acclaimed and admired Luxury brands. We continue to see strong long-term growth trends for luxury wine in TWE's key global markets, with a significant value creation opportunity leveraging and building on the strengths today of TWE, Penfolds, Treasury Americas and DAOU to create a multi- brand global luxury wine business of scale.

The Treasury Wine share price is down 6.5% over the last 12 months.

Motley Fool contributor James Mickleboro has positions in Treasury Wine Estates. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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