Treasury may have mulled sale of commercial wine portfolio

It is thought that the DAOU opportunity was presented to Treasury after it paid a strong price for the Frank Family Vineyards in California in 2021.

Treasury Wine Estates is believed to have contemplated a sale of its commercial wine portfolio before outlaying at least $US900m to buy the emerging US-based luxury wine business DAOU.

But the problem for Treasury is there are few buyers in the affordable wine market at present, although that may soon change as China resumes wine trading with Australia.

Some had questioned why it was taking on more debt and raising equity to buy more wine before it had offloaded non-core assets it is thought to have been keen to divest for years.

Another reason is that a sale of commercial wine would be dilutive to earnings, but less so after its DAOU acquisition.

It is thought that the DAOU opportunity was presented to Treasury after it paid a strong price for the Frank Family Vineyards in California in 2021.

Interesting in its presentation on the deal on Tuesday was a slide flagging a move to run its luxury US wine business as a stand-alone unit and create a premium global wine unit.

It suggests that a game plan could be to demerge some assets in the future or at least demonstrate the potential upside from doing so.

While some are sceptical of the deal, others believe the cost benefits will be far higher than anticipated because its facility in California’s Paso Robles can handle a lot more capacity.

This means the costs of producing more volumes of wine would be limited, creating the opportunity for higher margins.

Analysts at Morgan Stanley said that the deal price at 12.8 times earnings appeared full, representative of growth potential, ease of integration and strength of brand. But the relative infancy of the brand and recent growth raised some concerns.

The credentials of the brand performance are impressive to date, delivering 61 per cent growth on average over three years on a compound annual growth rate and 30 per cent margins. The strength of the brand was critical for Treasury Wine to execute on plans to grow DAOU internationally.

Treasury used US-based boutique advisory firm PJT Partners, Macquarie Capital and UBS for the transaction and DAOU was advised by Centreview Partners.