TWE tips out US brands as premium strategy takes shape
Treasury Wine Estates has reached a deal to sell several of its US wine brands to an industry giant as it kicks off plans to split the company into three.
Treasury Wine Estates has sold off several of its commercial US brands to focus on premium sales in North America.
Australia’s largest listed wine company, which produces several iconic South Australian brands including Penfolds, Wolf Blass and Wynns, announced to the ASX this morning it reached a deal with California-based The Wine Group to take over the Beringer Main & Vine, Beringer Founders’ Estate, Coastal Estates and Meridian brands.
TWE expects to generate a net cash inflow of at least $300m as a result of the divestment and restructuring activities, with today’s announcement to generate cash proceeds of about $100m.
Under the terms of the long-term licensing agreement which came into effect overnight, The Wine Group will source and sell the brands in the Americas.
The Wine Group will also acquire existing inventories associated with these brands on a progressive drawdown basis and will assume responsibility for related future bulk wine supply contracts.
In the six-month period to 31 December 2020, these brands contributed 2.3m cases of volume, $92 million of net sales revenue and $13.5m of gross profit.
The Beringer brand will be licenced to The Wine Group for use on Main & Vine and Founders’ Estate ranges only.
TWE will keep all other Beringer branded products, which the company said remained a core brand within the TWE portfolio.
The Wine Group is one of the world’s largest wine producers by volume, with annual production of about 53 million cases across more than 60 brands.
The move by TWE is a major step towards splitting the company into three separate divisions: Penfolds, Treasury Premium Brands and Treasury Americas from July 1.
The offloading of the lower end commercial brands comes ahead of the formation of Treasury Americas, which TWE describes as a future state premium US wine business.
The premium North American business aims to generate similar revenues as the region previously delivered, with broadly half the volume over time.
TWE’s Chief Executive Officer Tim Ford said the transaction with The Wine Group would be of long-term benefit to both organisations.
“For TWE, this transaction is a significant milestone towards our plans to deliver the future state premium US wine business and we can now focus solely on continuing the growth of our premium brand portfolio to drive future performance in the Americas,” he said.
The company last month reported a 24 per cent fall in net profit after tax to $175.3 million for the first half of the financial year, citing ongoing impacts of the coronavirus and Chinese tariffs for the result.
TWE’s share price has continued to recover since slumping to $7.97 in early November ahead of the imposition of provisional Chinese tariffs on its wines of 169.3 per cent.
Chinese demand previously accounted for 25 per cent of Penfolds’ global allocation by volume and 39 per cent by value.
The tariffs prompted TWE to reallocate its Penfolds Bin and Icon range, which includes top-shelf products such as Bin 389 and Grange, to other luxury growth markets including Europe, the US, Australia and Asian markets outside China.
TWE shares were up 3.7 per cent in the first hour of trade following this morning’s announcement to $11.51.
