A cautious rather than enthusiastic reception from the market to the news of an extra 50c a share added to the attempted bear hug takeover offer for Treasury Wine Estates (TWE) from US buyout group, KKR and its partner, another private equity group.
The higher offer, up 10.6% to $3.2 billion, or $5.20 a share, from the $4.70 a share ($3.05 billion) first offer in May from KKR, appears to be more serious, judging by the reaction from Treasury’s board.
Instead of the immediate rejection the first offer got, TWE’s board has sought to engage KKR in further discussions, including due diligence.
The company, which controls the Lindeman’s, Wolf Blass and Penfolds brands (among more than 80), is due to publish its poor 2013-14 annual results later this month, which won’t help in any attempt to obtain a further price rise.
Weak trading conditions in Australia and New Zealand, where the winemaker generates half its sales, plus continuing indifferent returns from the US, China and parts of Europe, means TWE’s mooted turnaround under its new management might end up being overseen by new owners.
The company will report big losses from write downs and impairments, as well as weak underlying results.
The market sent the shares up 4% to $5.15, 4c under the new $5.20 a share offer.
The day’s high was only $5.18, so the feeling in the market that it’s all over bar the final haggling.
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And given the way TWE has produced several surprise downgrades in the past 18 months, the due diligence could see a further adjustment to the price – downwards (as we saw in the recent takeover of Goodman Fielder).
The bidders are KKR and Rhône Capital L.L.C (another, smaller US-based private equity group) and they propose to conduct the offer via a scheme of arrangement, which will need the usual 75% of shares voting approval level that we have seen at David Jones, Woodside and the Westfield reshuffle.
In its statement yesterday, directors said:
"The Board of TWE, together with its advisers, has concluded, based on the revised proposal, that it is in the interests of its shareholders to engage further with KKR and Rhône. Therefore, subject to the negotiation of an appropriate confidentiality agreement, KKR and Rhône will be granted the opportunity to conduct non-exclusive due diligence.
"The proposal remains subject to several conditions, including (among others); completion of due diligence to KKR’s and Rhône’s satisfaction; final approval of KKR’s and Rhône’s Investment Committees; availability of financing with all conditions precedent satisfied or waived prior to implementation of the transaction; execution of satisfactory definitive documentation customary for a transaction of this nature and unanimous recommendation by the Board of TWE for the transaction.
"KKR and Rhône have stated that the payment of any dividends or capital returns prior to completion of any transaction will impact their valuation of the Company and, accordingly, would need to be deducted from the price proposed.
"The Board of TWE notes that there is no certainty that the proposed transaction will result in an offer for the Company.
"If an offer does result, the Board will assess whether it delivers a value proposition that is superior to the expected benefits from Management’s renewed strategic plans to: Increase and accelerate consumer marketing investment in the Company’s brands; Continue to drive efficiencies and improve the Company’s cost base; and Address structural opportunities in the Company by focusing on Commercial brands separately from the Luxury & Masstige portfolio in Australia (including initiatives to unlock further supply chain cost savings); as well as inorganic opportunities to build on Management’s existing growth platforms for TWE’s Luxury & Masstige brands," the statement read.
