KKR Lifts Bid for Grange-Maker Treasury to $3.2 Billion

KKR & Co. and Rhone Capital LLC raised an offer for Treasury Wine Estates Ltd. to A$3.4 billion ($3.2 billion), adding 11 percent to a previous bid that the maker of Penfolds Grange rejected earlier this year.

Funds managed by KKR and Rhone offered A$5.20 cash per share for the world’s second-largest listed winemaker, up from A$4.70 per share offered by KKR on April 16, according to a regulatory filing today. The revised conditional proposal is 5.1 percent above Treasury Wine’s last closing price of A$4.95.

The higher offer will increase pressure on Chief Executive Officer Mike Clarke, who’s promised to revitalize the company by spending more money on marketing and selling off winery and packaging plants. Treasury Wine has struggled with oversupply problems in the U.S. and a government austerity drive that’s curbing sales in China.

“Around A$5.25 is fair value, but Treasury Wine would want much more than that,” Evan Lucas, a market strategist at Melbourne-based IG Ltd., said by telephone. “You can’t rule out others coming in with a bid.”

Treasury Wine shares, which had lost 36 percent of their value over the 12 months before KKR’s initial approach was revealed May 20, climbed 4 percent to A$5.15 at the close in Sydney. The S&P/ASX 200 benchmark index fell 0.3 percent.

The offer gives Treasury Wine an enterprise value of about A$3.69 billion, according to data compiled by Bloomberg. That’s about 34 times Treasury Wine’s A$108 million of earnings before interest, tax, depreciation and amortization during the 2013 calendar year, and about 13.8 times the average of 13 analyst estimates for Ebitda in the 2014 financial year.

The latter figure matches the median Ebitda multiple in 50 wine and spirits deals since 2004, according to data compiled by Bloomberg.

Access to Books

KKR and Rhone will be granted non-exclusive access to the Melbourne-based company’s books, according to the statement. The offer price is dependent on Treasury Wine not paying dividends to shareholders before any deal goes ahead, the company said. A deal would be structured as a scheme of arrangement, meaning it can go ahead with the support of only 50 percent of shareholders.

Home to more than 80 brands sold worldwide, Treasury has for years lured suitors -- even before its 2011 spinoff from Australian brewer Foster’s Group Ltd. KKR’s investments include Toys R Us Inc. and European pharmacy chain Alliance Boots Holdings Ltd.

Rhone, which tried to buy a stake in English Premier League soccer club Liverpool in 2010, has investments in German chemicals companies, U.S. vacuum cleaner maker Rexair LLC, and Italian sailboat-builder ISB Group, according to data compiled by Bloomberg.

April Approach

Treasury said it was approached by KKR in April. Discussions broke off when the winemaker discovered that a shareholder had been informed of the buyout firm’s bid, forcing the company to disclose the offer to the market.

Treasury’s shares jumped a record 18 percent the day KKR’s proposal was announced and have closed above the bid every day since, a sign traders expected a higher offer.

Clarke, a former chief executive officer of Premier Foods Plc and executive of Mondelez International Inc. and Coca-Cola Co., described the coming 12 months as a “reset year” in a media call May 20 and said the company had more long-term value than was apparent from its current performance.

The company took about A$160 million of writedowns during 2013 and lost four top managers, including its chief executive officer, chief financial officer, and the heads of its Asian and domestic businesses. A crackdown on official gift-giving by China’s government had hit income in that market and meant that full-year earnings due Aug. 21 would be as much as 24 percent below a previous forecast, Treasury Wine said Jan. 30.

The company said June 25 it would also make an impairment of as much as A$260 million in the year ending June 30 as a result of overpayments for previous acquisitions, slowing sales of cheap wine, and writeoffs of brands and property. It will also spin off its Australian commercial wine business, which focuses on cheap bottles, into a unit separate to higher-priced brands.

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