Why is the Treasury Wine share price sinking 6% today?

This wine giant's shares are under pressure today. But why?

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The Treasury Wine Estates Ltd (ASX: TWE) share price has returned from its trading halt.

In morning trade, the wine giant's shares are down 6.5% to $11.29.

What's going on with the Treasury Wine share price?

The weakness in the Treasury Wine share price today has been caused by the company completing the institutional component of its $825 million equity raising.

These funds are being raised to support the acquisition of California-based luxury wine company DAOU Vineyards for US$900 million upfront and up to US$100 million in earnouts.

According to the release, the institutional component of the entitlement offer raised gross proceeds of approximately $604 million at a 10.7% discount of $10.80 per new share.

It was well supported by institutional shareholders, with approximately 78% of entitlements available to eligible institutional shareholders taken up. Take-up across Asia Pacific-based institutional shareholders was approximately 96%.

Entitlements that were not taken up by eligible institutional shareholders and entitlements of ineligible institutional shareholders were sold and cleared in the institutional shortfall bookbuild at a 6.5% premium of $11.50 per new share.

Treasury Wine's CEO, Tim Ford, commented:

We are very pleased with, and appreciative of, the level of institutional shareholder support we have received for both the equity raising and the Acquisition of DAOU Vineyards. We look forward to completing the retail component of the entitlement offer. We are excited to complete the Acquisition and to bring the combined business to life in 2024. The Acquisition reflects the continuation and acceleration of our luxury-led portfolio premiumisation strategy.

The company will now push on with its retail entitlement offer, which is expected to raise approximately $221 million at the same price.

Reaction

The overall reaction to the deal has been positive, with analysts overwhelmingly supportive of the transaction.

Goldman Sachs expects the deal to give Treasury Wine's bottom line a big boost. It said:

Converting to AUD, we calculate the pro-forma NPAT uplift to be in the range of 17-20% for FY25 vs our latest published NPAT.

Over at Citi, its analysts believe the deal could provide extra growth opportunities and lift its margins. It said:

We believe the proposed DAOU acquisition could provide Treasury with a new growth avenue and is consistent with its premiumisation strategy, noting Treasury upgraded its Americas EBIT margin ambition to high 20%s, up from 25%.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has positions in Treasury Wine Estates. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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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