Share pain as Michael Clarke plots Treasury exit

Treasury Wine Estates boss Michael Clarke claims the best years are still in front of the global wine giant despite his exit.

Treasury Wine Estates chief executive Michael Clarke claims the best years are still in front of the global wine giant as it discusses potential company-transforming acquisitions despite his shock decision to step down from his role, which sent the share price down almost 12 per cent.

Mr Clarke, who has become a darling of investors since he took over as CEO in 2014, plans to retire in the first quarter of fiscal 2021 when he will be replaced by current chief operating officer Tim Ford.

Mr Clarke will act as an adviser to the company — which boasts brands such as Penfolds and Wolf Blass in Australia and Beringer and Stag’s Leap in America — for an additional year, focused on mergers and acquisitions as Treasury mulls a potential major acquisition in North America.

Treasury Wine CEO Michael Clarke has flagged his retirement. Picture: Stefan Postles

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Share pain as Michael Clarke plots Treasury exit

“I am absolutely envious that I am not going to be here in three years’ time, or five years’ time,” Mr Clarke told analysts and investors Monday.

“I feel like a proud father — I feel upset I am not going to be part of it, though.”

But the move, which came only a fortnight after Treasury’s annual strategy day in Adelaide where Mr Clarke took a back-seat role, surprised investors who sent the shares down 11.8 per cent to close at $16.40.

Over five years Mr Clarke has cut costs, increased spending on marketing and boosted the company’s production capacity in America. He has also driven its success in China, where demand is strong for Treasury’s premium Australian and French wines.

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Earnings from Asia now account for almost half of Treasury’s pre-tax profits and Mr Clarke has highlighted its success in the region as a template for other Australian companies to follow.

When he took over the Treasury share price was $3.70. Three weeks ago they soared over the $19 mark.

Mr Clarke has also made significant personnel changes and says he is now confident Treasury has the right team to take the group forward under Mr Ford’s leadership.

Incoming Treasury Wines CEO Tim Ford

Mr Ford has spent eight years at Treasury overseeing its European, Asian and Australian operations and its supply chain.

Mr Clarke said family issues had forced his premature retirement.

“I have over the past six years not spent a lot of time with my wife (Fiona). That time apart is growing because of the ill health of my father and my mother (who live in the UK). My mother had a bad incident a couple of weeks ago,’’ Mr Clarke said on Monday.

“I can’t sustainably keep this going trying to do the right thing by the family and running the business at the same time.”

No formal external search conducted

He said he would not be doing another CEO role after leaving Treasury and said he would be prepared to extend his consultancy agreement, which was agreed following a request from the board.

Treasury chairman Paul Rayner admitted this morning that the board would have liked Mr Clarke to stay on longer and revealed no formal external search was conducted for his successor.

“We have had Tim evaluated externally and benchmarked against external candidates,’’ Mr Rayner said of the new CEO.

Mr Clarke reiterated Monday that Treasury was involved in a series of discussions that he said “may or may not lead to a merger or an acquisition,” and his decision to stay on meant the company would not feel pressured to rush any potential deal.

Taylor Collison told clients that Treasury was one of the few acquirers of size in the USA but that valuation continued to be the sticking point in potential deals.

The broker said Treasury’s preferred acquisition target should be Duckhorn, owned by TSG Capital. Other mooted targets include the wine assets of Constellation Brands and fellow US wine business Ste Michelle.

During his tenure Mr Clarke has been dogged by claims Treasury engages in “channel stuffing” — where wine is “sold” to wholesale distributors and the revenue booked before the wine is actually sold onto consumer, which he has vehemently rejected — and criticism of his share sales.

He has sold $17m of shares in the company in the past 15 months to meet obligations to the Australian Taxation Office.

“It is ridiculous the amount of repeated coverage the sale of shares to fund tax liabilities gets in Australia,’’ Mr Clarke said Monday.

“I will not be selling any shares from my post tax shareholding in Treasury Wine Estates (while an employee of the company). We have better years to come on the road going forward,’’ he added as he reaffirmed the company’s forecasts for reported 15-20 per cent EBIT growth for fiscal 2020.

He also stated of his successor: “I want to give air cover to the next CEO. He believes in TWE future but he may sell shares to cover taxes in the future.”

JP Morgan said Monday that while Mr Clarke’s retirement due to family concerns was ‘entirely understandable,’ it added: ‘We suggest frustration with investment community scrutiny around share sales may have also exacerbated the decision.’

‘We believe CEO-elect Mr Ford is capable but perhaps not as proven as Clarke. It was going to be difficult for anyone to follow Mr Clarke as TWE CEO and that challenge falls to Mr Ford,’’ the broker said.