Treasury Wine rejects KKR’s $2.9bn takeover

July 2014 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Private equity giant Kohlberg Kravis Roberts & Co LP (KKR) has had a $2.9bn offer for Australia’s Treasury Wine Estates rejected. The bid for Treasury Wines was dismissed out of hand in May, as the company judged the offer to be too low. As a result of the rejection, Treasury Wines’ share price soared above the bid value as investors rushed to get in ahead of any new offers from other interested parties.

According to Treasury, KKR made initial contact about a potential takeover on 16 April. Following the approach, the world’s second largest wine maker had intended to keep the bid secret. However, Treasury made the decision to disclose the offer after KKR approached investors directly. Under the terms of the deal, KKR would have paid A$4.70 per Treasury Wine share, a 15 percent premium to the firm’s closing price of A$4.07 on Monday 19 May, the day the rejection was made public. The offer was also a A$1 – or 27 percent – premium over Treasury’s share price on 16 April.

Under the leadership of new chief executive Michael Clarke, who was appointed in February 2014, Treasury has announced it intends to focus primarily on its most profitable brands while attempting to minimise its corporate overheads. In May, Treasury also announced it intends to reduce staffing levels by around 5 percent, a figure which adds up to approximately 175 positions. The redundancies form just part of the firm’s A$35m cost cutting plan. “The board has considered the KKR proposal in the context of these renewed plans and concluded that the proposal does not reflect the fundamental value of the company,” said Treasury Wine. There has been some speculation in recent months that Treasury may look to shed some of its portfolio of over 80 brands. Mr Clarke has suggested the company has too many brands.

Treasury, which was spun off from brewery Foster’s Group Ltd in May 2011, is hoping that a burgeoning interest in wine from the Asian markets, as well as the increasing popularity of its Penfold Grange brand will help to revitalise the firm’s finances. Much like the rest of the Australian wine industry, Treasury has endured a difficult year. Total Australian wine exports fell 6 percent to 677 million litres, valued at A$1.75bn, in the year through to March. As a result of Treasury’s financial difficulties the company’s shares have tumbled of late, falling from an all time high of A$6.43 in May 2013.

There is a feeling among some analysts that had KKR been successful in its attempt to acquire Treasury, the PE giant would have moved quickly to split up the firm by attempting to sell some of its divisions to trade buyers. The offer for Treasury was the latest in a line of attempted acquisitions by KKR in the Australian market. In recent years the New York based PE firm has also unsuccessfully bid for a fund manager and an underwear manufacturer in the country. Some analysts have suggested that KKR may make another attempt to acquire Treasury; however, it may face competition from other PE firms and private companies that have subsequently shown an interest.

The announcement of KKR’s acquisition attempt came as the US PE giant neared a $1bn deal for Goodpack Ltd, a packaging company in Singapore. The Goodpack and Treasury attempts are indicative of a sea change in KKR’s wider acquisition policy. Rather than concentrating its efforts on China, as it has done recently, KKR is beginning to focus on acquisitions in more developed nations in Asia. In 2013, the firm completed its largest ever Asia targeted fund, raising $6bn.

Richard Summerfield