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Treasury May Finally Be Sold--And Likely Dismembered

September 2014
by Paul Franson
Beringer is the largest North American winery owned by Treasury Wine Estates.

Victoria, Australia—After years of speculation, it looks like Australia’s troubled Treasury Wine Estates may get a new owner.

Private equity group KKR & Co. LP teamed up with Rhone Capital to make a $3.4 billion bid (all figures in Australian dollars unless otherwise noted) for the publicly traded company, then TPG Capital Management LP matched the move, sending Treasury stock above the offering price of $5.20 per share to $5.33 per share.

Treasury had rejected an earlier, lower offer of $2.9 billion ($4.70 per share) by KKR in May. China’s Bright Food Group was also interested but dropped out of the bidding, while another private equity fund, the Carlyle Group, was rumored to be placing a bid at press time.

With at least two bidders fighting over the world’s largest publicly owned pure-play wine company, a deal seems likely.

The industry has expected a takeover of Treasury since late 2013.

Foster’s Brewery spun out its wine assets in 2011 to form Treasury Wine Estates before it was in turn taken over by SABMiller.

While St. Helena, Calif.-based Beringer Vineyards was highly profitable before being acquired by Foster’s, the U.S. operations in particular have suffered since then, and overall company profit dropped 38% in the six months ended in February. The company has warned of more losses ahead.

An Aug. 21 report should detail the impact of oversupply in Treasury’s U.S. operations.

On June 25 the company said it would take a write-down of as much as $260 million for the year ending June 30 as a result of overpayments for previous acquisitions, slowing sales of cheap wine and write-offs of brands and property.

    Who are the players?


    Rhone Capital is a private-equity arm of Rhone Group specializing in middle-market leveraged buyouts, recapitalizations and partnership financings. The firm invests in European and trans-Atlantic companies in energy, materials, industrials, retailing, consumer staples, health care and financial sectors. It invests between $50 million and $200 million in companies with enterprise values between $200 million and $1.3 billion. Company leadership prefers to invest in firms having a sales value between $100 million and $750 million and EBITDA between $25 million and $100 million.

    TPG Capital (formerly Texas Pacific Group) is one of the world’s largest private-equity investment firms focused on leveraged buyout, growth capital and leveraged recapitalization investments in distressed companies and turnaround situations. It manages assets of $59 billion. TPG also manages investment funds specializing in growth capital, venture capital, public equity and debt investments. The firm invests in a broad range of industries including consumer/retail, media and telecommunications, industrials, technology, travel/leisure and health care.

    KKR & Co. (formerly known as Kohlberg Kravis Roberts & Co.) is an American multinational private-equity firm specializing in leveraged buyouts and headquartered in New York. The firm sponsors and manages private-equity investment funds. Since its inception, the firm has completed more than $400 billion of private-equity transactions and was a pioneer in the leveraged-buyout industry.


Its sales in China also have plummeted because of a government crackdown on luxury gifts. Interestingly, KKR owns part of VATS Liquor Chain Store Management, China’s largest distributor of alcoholic beverages.

Though troubled, Treasury seems an attractive target for the right buyer. For one, it has $2 billion in tax credits, partly resulting in a write-down of the value of its U.S. operations from the $2.9 billion paid in 2000 to today’s estimated value of $900 million.

It’s widely assumed that a buyer would reorganize the company and sell off assets including brands and property—or even split it geographically or between high-end and high-volume operations.

The company has 83 brands including some strong ones like Beringer (California), Penfolds (Australia), Lindemans (Australia), Wolf Blass (Australia), Chateau St. Jean (California) and Greg Norman (Argentina, Australia and California).

Its other U.S. brands include Cellar No. 8 and Souverain in California’s Sonoma County, and Stags’ Leap Winery, Etude, St. Clement and Sledgehammer in Napa County, Calif.

Some of these brands would likely be attractive to strategic buyers in the industry or financial groups.

One possible issue for bidder TPG is U.S. tied-house laws. The large private equity fund owns Caesar’s Entertainment, formerly Harrah’s. U.S. and California regulations generally prohibit owners of alcoholic beverage producers from holding retail alcohol licenses.

It would be ironic if TPG is successful, for it sold Beringer to Foster’s Group in 2000 for $2.56 billion. TPG (then called Texas Pacific Group), along with Napa-based wine investment firm Silverado Partners, bought the Beringer wine business from Swiss consumer goods company Nestle SA for $350 million (USD) in 1996.

Goldman Sachs is advising Treasury, while Nomura Holdings is reportedly advising the KKR-Rhone consortium.

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