Shares in Treasury Wine Estates (TWE) have had their best day for more than a year after the company revealed it had rejected a bear hug offer from US buyout group KKR at $4.70 a share.
The offer valued the company at around $3 billion.
The shares ended up nearly 18%, or close to 73c, at $4.80. They had closed the previous day at $4.07 and looking to go lower.
The KKR offer price is not particularly generous – Treasury shares were around the $4.70 level late last year (they hit the year’s low of $3.41 after the February interim report). But a year ago the shares were at their year high of $6.47.
The company, which makes 84 different wine brands including the upmarket Penfolds and Lindemans, said it had released details of the KKR offer after the US private equity group had started approaching Treasury’s shareholders (that was later rejected by KKR).
It is the second offer Treasury (TWE) has received recently.
Last week it was forced deny that it rejected an offer from French grog group, Pernod Ricard (which owns Jacobs Creek, one of the biggest selling Aussie wines) for its US assets, which is dominated by the Beringer wine group.
TWE has been exposed to takeover interest by hundreds of millions of dollars of losses in recent years from poor and badly planned expansion and deals in the US and in Australia.
And shareholders will have to put up with more losses after the newish CEO Anthony Clarke revealed plans to cut hundreds more jobs at a cost of at least $35 million.
TWE 1Y – Treasury shares jump after $3bn bid
The KKR offer was rejected because Treasury said it didn’t properly value the company.
KKR (known as Kohlberg Kravis Roberts) lobbed a bid on April 16, just before Easter.
Treasury said KKR had asked for the bid to be kept confidential, but on Monday night Treasury said it learned that the buyout firm had spoken to "one or more of TWE’s shareholders".
(KKR said in a statement late yesterday that it had held confidential talks with "certain shareholders" in TWE.)
TWE asked for its shares to be halted; they were, the company released two statements and the halt was lifted at 11.20 am, and up they went, quickly racing to a high of $4.93.
Treasury’s latest round of job cuts will occur across all areas of its business as part of a program to deliver the forecast $35 million in savings from the 2014-15 financial year.
"The cost savings will be generated substantially from a reduction in full time roles (impacting all regions and functions) and associated costs such as office space rationalisation, leased IT equipment and service contracts as well as a reduction of all non-essential overhead costs and discretionary expenditure," the CEO said yesterday.
"The cost savings will be generated substantially from a reduction in full time roles, impacting all regions and functions," the company said yesterday without providing further detail.
In 2013, it disposed of more than $35 million worth of excess or aged wine in the US, and offered major discounts on other wines, after oversupplying the market.
Chief executive Michael Clarke, who was appointed at the end of March, has been reviewing the company’s operations and has decided to increase its investment in marketing to drive profit growth.
"Commencing 1 July 2014, TWE will commence a major step up in consumer marketing spend and in selling and execution capabilities that will enhance TWE’s brand equity and drive stronger connections with consumers, retailers and distributors.
“TWE’s brands have suffered from a lack of consumer facing marketing investment and we will address this in fiscal 2015 by increasing consumer marketing spend in fiscal 2015 by circa 50% relative to the prior year.
"It is imperative that our marketing and sales capabilities are more in line with the Company’s ability to make outstanding wines across all categories.
"We must take the tough decisions to fund the step up in consumer marketing by reducing overheads," Mr Clarke said yesterday.
Trading conditions in Australia remain difficult, due to intense competition and a subdued retail environment, he added.
