maker Treasury Wine Estates Limited (Treasury Wines) has rejected a takeover proposal of $4.70 cash per share from US-based global investment firm Kohlberg Kravis Roberts & Co. L.P. (KKR), saying it does not properly value the Company.While it owns 80 brands in total, the Penfolds wine brand is central to Treasury Wines operation as a premium winemaker.
The Penfolds brand was founded in Australia in 1844 by a young English doctor who migrated to Australia. Dr Christopher Rawson Penfold and his wife Mary purchased the Mackgill estate and began producing wines. Initially the wines were prescribed as tonic wines for anaemic patients. The Company has grown to become one of Australia’s best known premium wine brands.
Proposal details
KKR yesterday confirmed that it had submitted on 16 April 2014 a preliminary, indicative and non-binding offer to acquire all shares in Treasury wines.
KKR said the price of A$4.70 cash per share represented a premium of:
• 27 per cent to the closing share price on 15 April 2014 of $3.69 per share, the closing price of the Treasury Wines shares on the day prior to KKR approaching Treasury Wines;
• 28 per cent ot the one month volume weighted average share price on 15 April 2014 of $3.68 per share; and
• 29 per cent premium to the median broker consensus target price for Treasury Wines of $3.64 per share
Treasury Wines said KKR had requested that the takeover proposal be kept confidential. Treasury Wines said its Board decided that, in order to have meaningful discussions with KKR, it was important to preserve the confidentiality of the proposal and that premature disclosure would be contrary to the interests of Treasury Wines shareholders, especially given the highly conditional nature of the proposal. Treasury Wines said the decision not to disclose the proposal was also consistent with the Company’s continuous disclosure obligations. Since the proposal was received on 16 April 2016, Treasury Wines has held preliminary and confidential discussions with KKR.
Treasury Wines said it learnt after the market closed on 19 May 2014 that KKR (and advisors) had spoken to one or more of Treasury Wines’s shareholders and therefore there was a risk that the confidentiality of the KKR proposal had been lost. Accordingly, Treasury Wines said it announced its rejection of the offer to ensure there was “an informed market for Treasury Wines shares”.
KKR confirmed that its advisors had held discussions with certain shareholders of Treasury Wines “on a wall-crossed, confidential basis and subject to appropriate confidentiality protocols”.
Proposal reviewed in content of new management team
Treasury Wines said its Board, together with its advisors, had carefully reviewed the proposal in the context of renewed plans for the Company under the executive management team.
The Company said that since commencing as Treasury Wines’s Chief Executive Officer on 31 March 2014, Michael Clarke had been progressing with plans to improve the Company’s performance, with a focus on improving brand prioritisation and investment, addressing structural challenges facing the business and reducing overhead costs.
According to Treasury Wines, while these plans may drive potential asset impairments, they are “fundamental” to a turnaround in Treasury Wines’s short term performance and the Company’s ambitions to deliver long-term sustainable growth.
In the context of these renewed plans, Treasury Wines said its Board had concluded that the proposal did not reflect the fundamental value of the Company and it was therefore not in the best interests of shareholders.
The Board of Treasury Wines does not intend to take any further action in relation to the proposal. The Board of Treasury Wines remains focused on maximising shareholder value and will carefully consider any future proposal that is consistent with this objective.
Treasury Wines said its shareholders did not need to take any action in response to the KKR proposal.
Last week Treasury Wines was forced to deny it had been approached by Constellation Brands’ interested in acquiring Treasury Wines US business.
Treasury Wines said it had “no intention of selling its US operations and sees that market as a key plank of its future growth platform”.
