(Reuters) -Australia’s Treasury Wine Estates (OTC:TSRYF), the world’s biggest standalone winemaker, agreed to a $900 million buyout of California’s DAOU Vineyards, locking in a strategy of selling higher-margin luxury products amid uncertainty about trade with China.
Treasury said it planned to fund the acquisition in part through a A$825 million ($525.53 million) equity raising at A$10.80 per share, a 10.7% discount to its closing price on Monday.
The wine producer has been resetting its strategy in an attempt to diversify outside of China, which used to contribute a third of its profits, after Beijing imposed tariffs on Australian wine in 2021 when Canberra called for an inquiry into the origins of COVID-19.
The Australian government said this month Beijing had agreed to an expedited review of the tariffs, expected to take up to five months, in a move the maker of Penfolds Grange said could help it rebuild its China business over time.
DAOU fills a key Treasury Americas portfolio gap at the $20 to $40 per bottle range and strengthens the existing luxury portfolio above $40 per bottle, the Australian company said.
The winemaker’s combined premium and luxury portfolios delivered double-digit gross profit growth in fiscal 2023, according to its annual report.
“On face value the acquisition rationale is solid, and financial metrics look attractive….the concern investors will have is that TWE Americas has been underperforming in recent times with the Frank Family Vineyard acquisition driving the earnings,” E&P Capital retail analyst Phillip Kimber said in a note.
The deal is expected to near full completion by the end of 2023 and to contribute earnings before interest and taxes between $23 million and $25 million in the second half of 2024.
Including cost synergies of more than $20 million, the acquisition is expected to be mid to high-single-digit earnings per share (EPS) accretive in fiscal 2025, the first year of Treasury owning DAOU.
Treasury said it would also issue A$157 million of new shares to the existing owners of DAOU.
($1 = 1.5699 Australian dollars)
Source: Economy - investing.com
