More life after China for the Australian wine giant Treasury Wine Estates (ASX: TWE).
Earlier this year, TWE was on every analyst’s seriously ill list after its wine exports to China were whacked by punitive tariffs.
China’s highly political decision to target TWE’s rapidly growing exports of high value wines – especially its upmarket luxury label Penfolds – came after bans on Australian barley, coal, lobsters and seafood as well as some meat products.
The tariffs imposed this year added to the original imposts a year ago in November 2020.
That saw the company rapidly restructure, redirect sales elsewhere in Asia, back into Australia but especially to the US (where it has failed to make headway on three separate occasions in the past 20 years or so under different names – starting with Southcorp and finishing with TWE in 2019, when overstocks of its various wine labels caused a major sales hiccup and losses).
But this time around the US push seems better-managed and perhaps that’s why TWE has taken the big step to buy an upmarket winery in California’s Napa Valley for more than $433 million.
TWE already has extensive wine making and grape growing interests in California but acquiring the Frank Family Vineyards portfolio of chardonnay, cabernet sauvignon, pinot noir, and sparkling wines takes TWE into the luxury offerings class in the huge but still fractured US market.
Founded in 1992, the Frank Family vineyard’s luxury wines retail from $US38 to $US225 ($309) a bottle. The wine business includes two vineyards, a winery, and a tasting room.
Treasury Wines chief executive Tim Ford said the acquisition, to be completed in December, was an important step to becoming a leader in premium wines in the American region.
“This is a rare opportunity to acquire a luxury brand and portfolio of wines that consumers enjoy and connect with,” Mr Ford said in Thursday’s statement.
“This is a compelling strategic and financial investment, comfortably meeting our investment criteria and one we expect will deliver attractive growth and financial returns for TWE’s shareholders over the long-term.”
More importantly it gives TWE a greater presence in a market that will do well in coming years given that the US economy has a much better future than the Chinese economy which is now stagnating.
TWE shares rose 2.5% to $11.54 yesterday in a positive reaction to the buy.
