©Reuters. Bottles of Penfolds Grange, made by Australian winemaker Penfolds and owned by Australia’s Treasury Wine Estates, stand on a shelf for sale at a wine shop in central Sydney, Australia, August 4, 2014. REUTERS/David Gray/File photo
By Byron Kaye, Roushni Nair and Peter Hobson
(Reuters) – Top Australian winemaker Treasury Wine Estates (OTC:) has agreed to a $900 million takeover of U.S. rival DAOU Vineyards, boosting its exposure to a market it has long struggled to dominate amid of uncertainty about the stalled exports to China.
Treasury, owner of the Penfolds and Wolf Blass labels, said it was buying the privately held Paso Robles, California company, named after the two brothers who founded it, to fill a gap in its luxury offerings, defined as bottles made for Retailing for $20 to $40.
The deal builds on the Australian company’s plan to take its portfolio to the next level, where it says demand and margins are higher, but places Treasury deeper into a geographic segment that has proven difficult even as its product offering.
Ten years ago, the Treasury Department destroyed thousands of bottles of cheap wine that it could not sell in the U.S. after aggressive expansion. In 2021, as China imposed crippling tariffs, the Treasury paid $315 million for California’s Frank Family Vineyards, calling it a luxury brand, but profits from the Treasury’s US operations fell in the year to June 2023.
“I’m not responsible for the last 20 years. I’m responsible for the last three,” Treasury CEO Tim Ford, who started in the role in 2020, said during an analyst call.
The Treasury Department continues to expand in the U.S. even as it awaits a recently announced tariff revision by China that left that country as Treasury’s largest market.
“I don’t see why we should wait for China,” Ford said on the call.
“If China comes back at the end of this review process, it will only open up new opportunities,” he added.
Trading in Treasury shares was at a standstill as the company asked investors to buy $825 million in new shares to help finance the deal, but analysts expressed caution about the decision given Treasury’s track record in the US.
“The concern investors will have is that TWE Americas has underperformed recently,” E&P Capital analyst Philip Kimber said in a client note.
The deal is expected to be almost fully completed by the end of 2023 and deliver earnings before interest and taxes of between $23 million and $25 million in the second half of 2024.
($1 = 1.5699 Australian dollars)