By Emma Koehn
Penfolds owner Treasury Wine Estates is upping its bets on the global growth potential of the luxury wine market, agreeing to fork out up to $1.6 billion to buy high-end Californian winemaker Daou Vineyards.
The ASX-listed winemaker said it had been watching the Daou business since the time it acquired Napa Valley’s Frank Family vineyards in 2021 in a deal worth more than $400 million, and told analysts on Tuesday that Daou presented an opportunity for Treasury to build another luxury wine pillar alongside the Penfolds business.
The Daou business includes a popular tasting venue, luxury wineries and vineyards in California.
“Daou is the standout performer… The Daou brothers and their team in particular have done an incredible job with this business,” Treasury chief executive Tim Ford said.
Treasury revealed on Tuesday that it had entered a deal to buy the Californian winemaker, a business founded in 2007 by brothers Georges and Daniel Daou, in a deal worth $US900 million ($1.4 billion), plus a possible additional payment of $US100 million if certain growth thresholds are met, bringing the total price tag to $US1 billion.
The deal will be funded through a combination of an $825 million equity raising, a $157 million placement of shares to the owners of Daou, and taking on $311 million of debt, the Melbourne-based company said in a statement to the Australian sharemarket on Tuesday morning.
Daou is based in Paso Robles, California, and was founded by the Daous, which the Californian winemaker describes on its website as “brothers, best friends, and visionaries”.
The group makes wines across five product tiers ranging from $US20 and $US500 a bottle, and owns a tasting room venue, four luxury vineyards and four wineries.
Treasury championed the growth potential of luxury wine sales in the Americas, and said on Tuesday that Daou’s portfolio filled a clear gap in the company’s range for wines at the $US20-$US40 a bottle price point.
The US is a key global market for Treasury, and it has made investments in its wine portfolio there at a range of price points, including with 19 Crimes, a label promoted by rapper Snoop Dogg. Sales of 19 Crimes have struggled over the past year, however, as consumers baulk at cheap wine.
Sales of higher-end products have continued to perform strongly, however, and Treasury said on Tuesday that the acquisition of Daou provided another opportunity for the company to distribute luxury products globally.
The company faced questions from analysts about the price of the acquisition and the strategy behind it. Bank of America analyst David Errington asked why Treasury was so focused on investing in the US when it could instead invest to further grow the Penfolds business globally.
“I just don’t get why you need to keep doubling down in the US,” he said.
Ford once again highlighted the growth potential of the luxury market in the region, saying the group could focus on both brands.
“There is no reason why we can’t do both. Penfolds is not going to be starved of any investment. We believe we can have a very strong second business next to Penfolds,” he said.
E&P Capital analyst Phillip Kimber said the acquisition was in line with the group’s long-term strategy, but noted that some investors would be concerned given Treasury’s Americas portfolio had underperformed in recent times. Despite this, he was positive on the stock.
“A luxury acquisition the size of Daou will see TWE’s exposure to the challenging parts of the market be more diluted. A successful reduction in commercial wine exposure for Treasury premium brands would further add to this,” he said.
Treasury Wine Estates shares closed at $12.10 on Monday and remain in a trading halt.
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