Treasury Wine Estates has gone on the offensive after bringing the troubled Australian group back to profitability.
The group, whose brands include leading Australian labels Penfolds, Rosemount and Wolf Blass, is buying the majority of assets from Diageo Wine’s US and UK operations for $US552 million ($AU760 million).
The deal will be funded by a 2-for-15 rights offer to raise $486 million, with the balance funded through new debt. The shares will be offered at $5.60, a 14.8% discount on yesterday’s close.
The acquisition is expected to bring annual cash synergies of at least $US25 million ($34 million).
Treasury Wine also announced an improved financial outlook with better sales and earnings performance in the first quarter of 2016.
The company, which shifted emphasis to more high-end wine sales rather than big volumes, expects full year EBIT (earnings before interest, tax) to be between $270 million and $290 million.
Diageo Wine is a leading player in the US luxury and “masstige” (quality mass appeal) wine market, as the owner of a collection of iconic wine brands based in Napa, California.
Key US brands to be acquired include Napa Valley’s wineries Beaulieu Vineyards, Sterling Vineyards, Acacia, and Provenance and Hewitt.
Michael Clarke, Treasury Wine CEO, says the acquisition will transform the US business into a larger player of scale in the luxury and “masstige” segments.
“We remain committed to our strategic roadmap of transitioning our business from an order-taking agricultural company to a brand-led and capital-light, marketing organisation,” says Clarke.
“The acquisition is highly complementary to this strategy and I am confident our combined businesses will deliver both immediate and long term benefits to our shareholders.”
In August, the company announced a return to profit. Statutory net profit for the full year was $77.6 million, an improvement of $178.5 million on the previous $101 million loss.
The deal comes just a day after the world’s two biggest brewers: Budweiser-owner AB InBev and SABMiller announced plans for a $150 billion merger as part of a continued consolidation and strategic realignment of the alcohol industry in recent years.