Two global private equity giants are set to face off in a battle for Australia’s Treasury Wine Estates Ltd after TPG Capital Management LP matched a $3.1 billion move from KKR & Co. LP for one of the world’s biggest wine makers.
A week after KKR teamed with Rhone Capital LLC to propose a A$5.20 a share offer for Treasury, the owner of the Penfolds, Lindemans and Wolf Blass brands said yesterday it received a second identical approach from a global private equity firm .
The buyout firm behind the second proposal for a firm that expects massive writedowns from problems in US and China operations was TPG, a source with direct knowledge of the matter told Reuters.
By lodging an offer that matches KKR’s, TPG ensures it gets a first-hand look at the confidential financial details of the company that attracted its rival in the first place. While the pair could yet withdraw interest after due diligence, the prospect of competing bids by two of the world’s biggest private equity investors sent Treasury’s shares 4 per cent higher to close at a year high of A$5.33 – above the indicative offer from both parties and valuing the target at about $3.21 billion.
“It’s highly probable that a deal gets done now that there’s two of them,” CLSA analyst David Thomas said. A private equity purchase of Treasury up to A$5.80 a share, or A$3.77 billion, “stacks up”, Thomas said.
“There’s been some pretty difficult periods for the business but if you look at where the earnings have come from there is clear value locked away there, which either the current team or private equity, through some level of a break-up, could crystallise,” said Thomas.
The skirmish for Treasury comes as mergers and acquisitions activity in Australia booms, driven by takeovers by overseas players. Australian M&A deal volume jumped to $81.1 billion so far this year, making it the biggest year for deal activity since 2011, according to Thomson Reuters data.
Treasury has been viewed as ripe for a takeover since late 2013. The world’s second-biggest wine supplier by volume sales reported profit slumped 38 per cent in the six months ended February, with warnings of more pain to come.
The company is scheduled to release full-year results on August 21 that are expected to highlight the impact of oversupply in its US operations and dwindling China sales because of a government crackdown on luxury gifts, as well as early effects of Clarke’s efforts to turn the firm around.
According to CLSA analyst Thomas, a sale involving a trade buyer could conceivably value Treasury up to A$7 a share, or A$4.5 billion. However, Treasury’s willingness to engage with KKR and Rhone based on a A$5.20 a share offer signalled the level at which the wine maker would consider discussing a takeover.