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News Alert: Treasury Considers “Demerger” Of Penfolds Business

April 8, 2020

Treasury Wine Estates is eyeing a potential “demerger” of its Penfolds business, which would create a new company for the Australian luxury wine brand.

The company said a potential demerger would allow the luxury Penfolds portfolio to unlock its full potential while TWE works to further premiumize and streamline the rest of the business.

Treasury CEO Michael Clarke noted, “Penfolds accounts for approximately 10% of our volume, but well over half of our earnings, with unique resources and a differentiated execution focus compared to the remainder of our business. A potential demerger would enhance New TWE’s and Penfolds’ ability to pursue their own strategic priorities and deliver a stronger long-term growth profile.”

If the demerger were to go through, TWE shareholders would own a share in Penfolds and in “New TWE” proportional to their existing TWE holdings.

Treasury added that it plans to streamline and further premiumize its U.S. portfolio regardless of whether the demerger happens, noting, “The retained commercial business will comprise a smaller portfolio of profitable and differentiated brands that will continue to appeal to consumer trends and preferences across key markets.”

Updating the market on the company’s performance under the crisis conditions due to COVID-19, TWE noted that “strong retail depletions growth towards the end of Q3 has reflected consumer behavior to stock product and the greater propensity for in-home consumption during government-imposed shutdown periods, coupled with strong momentum for the portfolio through e-commerce channels.” But it added that commercial and masstige ($10-$20) brands) have been driving its performance since the outbreak.—Daniel Marsteller

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