Demerger or asset sales on the slow burn for Treasury Wine Estates

Treasury Wine Estates said some of its non-luxury wine brands were performing strongly. Picture: iStock

Treasury Wine Estates boss Tim Ford has put to rest any suggestion that the group could be a participant in the latest round of consolidation in the wine sector this year, as he flagged that a spin-off of its non-core assets was not necessarily a given.

Market experts believe that three possible options are likely for the non-core premium and commercial wine brands of Treasury Wine Estates, which has made it clear to investors that its key focus is the luxury end of the wine market at a time younger consumers conscious of the health impacts of alcohol are consuming less.

One option is that it demerges or sells its entire Treasury Premium Brands portfolio, including its premium brands in the United States.

The second is that it sells its portfolio of US premium brands, with the exception being 19 Crimes, which was still selling brands into the United Kingdom.

Or the third is that it maintains its position.

At the Macquarie Australia Conference in Sydney, Mr Ford said after his presentation that the company had no interest in any deal with another player such as Pernod Ricard when it came to dealing with its non-core assets.

Pernod Ricard, which owns Australia’s Jacob’s Creek and New Zealand’s Brandacott Estate, has had a suite of Australian assets up for sale through JPMorgan and Morgan Stanley, while the listed Australian Vintage has been in talks with Bain Capital about a backdoor listing of its Accolade Wines into the business.

It is understood that both Accolade and Australian Vintage had carried out due diligence on each other and the talks were well progressed amid a tough environment for the wine industry due to weaker demand and rising costs.

Mr Ford also said there were about 15 to 20 non-core brands that were performing strongly, such New Zealand’s Matua wine brand.

However, with brands such as Wolf Blass Wines and Lindeman’s, he suggested that it was not the case that they belonged in the portfolio.

Some market experts believe it is likely that Mr Ford will make a decision towards the end of the year about a possible demerger or sale of non-core assets in time to announce to the market with its half year results in February.

Industry consolidation made sense in the future, with significant synergies capable of being achieved.

But Treasury Wines’ current focus was on the reopening of the Australia market to China.

“We have not made a decision and there is a chance we don’t,” Mr Ford said at the Macquarie Conference about a sale or demerger of non-core assets.

“We will assess: Is there a better shape portfolio?” he said with respect to whether only some brands were divested.

However, Mr Ford added that the premium and commercial portfolio spanned the United States, Europe and Australia, which could have an attraction to a buyer.

Mr Ford said that younger consumers were consuming less wine but at a higher price point, and that zero alcohol was not something the company was pursuing, indicating it was less viable for the company financially, although lighter wines were of interest.

In November, Treasury Wine bought DAOU Vineyards in the United States, outlaying $US900m for the business.

The $9bn company’s market value has recovered since the deal when it tapped the market for $825m to fund the acquisition at $10.80 per share.

Treasury Wine shares closed up 0.4 per cent at $11.47.