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TWE To Acquire Diageo’s Wine Business For $600 Million

October 14, 2015

Treasury Wine Estates (TWE) has made another major move in its ongoing rejuvenation project, agreeing to acquire the majority of Diageo’s U.S. and U.K. wine interests for $600 million. The deal, which is expected to close within three months, covers brands including Beaulieu, Sterling, Provenance, Rosenblum, Acacia, Hewitt and Blossom Hill among others. It does not include the U.K.’s Justerini & Brooks, Chalone or the Acacia winery and vineyard. The purchase price includes $552 million in cash and $48 million from the assumption of capitalized leases. Treasury says the acquisition will immediately double its premium and luxury net sales in the Americas.

Diageo’s U.S. wine division, Chateau & Estate, rose 2% as a whole last year to 3.8 million case depletions, according to Impact Databank, led by Beaulieu at 1.1 million cases and Sterling Vintner’s Collection at 900,000 cases. DC&E’s other key brands include Acacia, Sterling Vineyards and Rosenblum. Diageo recently reported that its North American wine volume and organic net sales both slipped by 2% in the 12 months through June. Globally, Diageo’s wine volume and net sales each declined 1% over the same period. The company’s wine business accounted for 4% of sales in its fiscal year completed in June.

“With the completion of this transaction Diageo will have released £1 billion from the sale of non-core assets since the start of the financial year,” said Diageo CEO Ivan Menezes.

For TWE, the acquisition dovetails with CEO Michael Clarke’s plan to increase the company’s presence at the premium-and-above level of the wine market, while cutting costs and injecting the savings into marketing to boost the top line. That strategy has already born fruit since Clarke took the helm in early 2014. According to Impact Databank, TWE’s U.S. depletions reversed their previous decline last year, rising an aggregate 1.5% to 12.8 million cases, with growth led by Beringer, Matua and Penfolds.

After reporting an A$100.9 million ($74.1m) net profit loss in fiscal 2014, TWE posted an A$77.6 million profit gain in fiscal 2015, ended in June. That performance included solid growth in the Americas, with net sales revenue up by 8.6% on a 0.7% rise in depletions. Growth in the group’s luxury (+16%), masstige (+20%) and priority commercial (+1%) segments was partially offset by a marked dropoff in its non-priority commercial tier (-13%). With today’s announcement, TWE adds a number of well-known premium-and-above California brands to its arsenal.

 

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